Ch 11 micro

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The basic activity of a firm is

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to use inputs to produce outputs of goods and services.

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Inputs =

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Workers, machines, natural resources, etc.

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Technology=

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The processes a firm uses to turn inputs into outputs of goods and services.

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If a firm improves its ability to turn inputs into outputs, we refer to this as

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Positive technological change.

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Technological change

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A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs.

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The short-run period

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Period of time during which at least one of a firm's inputs is fixed.

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Long run period

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The firm can vary its inputs, adopt new technology, and increase or decrease the size of its physical plant.

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Variable costs

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are costs that change as output changes.

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Fixed costs

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are costs that remain constant as output changes.

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Total cost=

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Fixed cost +Variable cost

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Explicit cost

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a cost that involves spending money.

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Implicit cost

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a non-monetary opportunity cost.

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economic depreciation

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decrease in resale value.

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production function

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the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs.

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average total cost=

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TC/ Q

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For low levels of production,

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the average cost falls as the number of pizzas rises.

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at higher levels,

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The average cost rises as the number of pizzas rises.

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The "falling-then-rising"nature of average total costs results in a

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U-shaped average total cost curve.

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Law of diminishing returns

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The principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline.

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When the marginal product of labor is increasing,

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Total output increases at an increasing rate.

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When the marginal product of labor is decreasing, but still positive

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Total input increases, but at a decreasing rate.

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The output curve flattening out, and the decreasing marginal product curve, both illustrate

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the law of diminishing returns.

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APL=

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Q/L

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marginal cost=

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the change in a firm's total cost from producing one more unit of a good or service (MC= CHANGE TC/CHANGE Q.

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AFC=

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FC/Q

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AVC

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VC/Q

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the vertical sum of the AVC and AFC curves is

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ATC curve

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because AFC gets smaller,

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the ATC and AVC curves converge.

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A long-run average cost curve shows

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The lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed.

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economies of scale

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The firm's long-run average costs falling as it increases the quantity of output it produces.

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The lowest level of output which all economies of scale are exhausted is known as the

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minimum efficient scale.

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constant returns to scale

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its long-run average cost remains unchanged as it increases output.

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diseconomies of scale

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a situation in which a firm's long-run average costs rise as the firm increases output.

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Feasible=

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data outside line.

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not feasible

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data inside line.

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If the cost of the next unit (MC) is less than the ATC than...

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ATC is decreasing.

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If MC is greater than ATC than...

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ATC is increasing.

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If MC = ATC, than...

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ATC is neither increasing nor decreasing.

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Firms want to maintain low what

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ATC.

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LRAC=

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Long run avg cost.

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MPL

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change in Q/change in L

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MC=

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change in TC/change in Q

1 of 42

question

The basic activity of a firm is

answer

to use inputs to produce outputs of goods and services.

question

Inputs =

answer

Workers, machines, natural resources, etc.

question

Technology=

answer

The processes a firm uses to turn inputs into outputs of goods and services.

question

If a firm improves its ability to turn inputs into outputs, we refer to this as

answer

Positive technological change.

question

Technological change

answer

A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs.

question

The short-run period

answer

Period of time during which at least one of a firm's inputs is fixed.

question

Long run period

answer

The firm can vary its inputs, adopt new technology, and increase or decrease the size of its physical plant.

question

Variable costs

answer

are costs that change as output changes.

question

Fixed costs

answer

are costs that remain constant as output changes.

question

Total cost=

answer

Fixed cost +Variable cost

question

Explicit cost

answer

a cost that involves spending money.

question

Implicit cost

answer

a non-monetary opportunity cost.

question

economic depreciation

answer

decrease in resale value.

question

production function

answer

the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs.

question

average total cost=

answer

TC/ Q

question

For low levels of production,

answer

the average cost falls as the number of pizzas rises.

question

at higher levels,

answer

The average cost rises as the number of pizzas rises.

question

The "falling-then-rising"nature of average total costs results in a

answer

U-shaped average total cost curve.

question

Law of diminishing returns

answer

question

When the marginal product of labor is increasing,

answer

Total output increases at an increasing rate.

question

When the marginal product of labor is decreasing, but still positive

answer

Total input increases, but at a decreasing rate.

question

The output curve flattening out, and the decreasing marginal product curve, both illustrate

answer

the law of diminishing returns.

question

APL=

answer

Q/L

question

marginal cost=

answer

the change in a firm's total cost from producing one more unit of a good or service (MC= CHANGE TC/CHANGE Q.

question

AFC=

answer

FC/Q

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AVC

answer

VC/Q

question

the vertical sum of the AVC and AFC curves is

answer

ATC curve

question

because AFC gets smaller,

answer

the ATC and AVC curves converge.

question

A long-run average cost curve shows

answer

The lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed.

question

economies of scale

answer

The firm's long-run average costs falling as it increases the quantity of output it produces.

question

The lowest level of output which all economies of scale are exhausted is known as the

answer

minimum efficient scale.

question

constant returns to scale

answer

its long-run average cost remains unchanged as it increases output.

question

diseconomies of scale

answer

a situation in which a firm's long-run average costs rise as the firm increases output.

question

Feasible=

answer

data outside line.

question

not feasible

answer

data inside line.

question

If the cost of the next unit (MC) is less than the ATC than...

answer

ATC is decreasing.

question

If MC is greater than ATC than...

answer

ATC is increasing.

question

If MC = ATC, than...

answer

ATC is neither increasing nor decreasing.

question

Firms want to maintain low what

answer

ATC.

question

LRAC=

answer

Long run avg cost.

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MPL

answer

change in Q/change in L

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MC=

answer

change in TC/change in Q

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Ch 11 micro

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