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Chapter 11 Outputs and inputs

question
What are firms main objective
answer
profit maximization
question
Decision time frames
answer
- Short run
- Long run
question
The short run is
answer
a time frame in which the quantity of one or more resources used in production is fixed.
question
Capital in the short run is
answer
fixed
question
Other resources (labor, materials, energy) in the short run
answer
can be changed in the short run
question
The long run is
answer
a time frame in which the quantities of all resources—including capital—can be varied.
question
A sunk cost is
answer
a cost incurred by the firm and cannot be changed.
question
In relationship to a firm, sunk costs are
answer
irrelevant to a firms current decisions
question
To increase output in the short run, a firm must
answer
increase the amount of labor employed.
question
Three concepts describe the relationship between output and the quantity of labor employed:
answer
1. Total product
2. Marginal product
3. Average product
question
Total Product is
answer
the total output produced in a given period.
question
The marginal product of labor is
answer
the change in total product that results from a one-unit increase in the quantity of labor employed, with all other inputs remaining the same.
question
The average product of labor is
answer
equal to total product divided by the quantity of labor employed.
question
As the quantity of labor employed increases:
answer
- Total product increases.
- Marginal product increases initially ...
but eventually decreases.
- Average product decreases.
question
Product curves show...
answer
how a firm's total product, marginal product, and average product change as labor changes.
question
Total product curve slope
answer
always upward sloping
question
Total product curve only shifts if
answer
there is a change in technology
question
When marginal product exceeds average product
answer
average product increases
question
When marginal product is below average product
answer
average product decreases
question
When marginal product is equal to average product
answer
average product is at its maximum
question
producing more output and using more labor causes
answer
increase in costs
question
Three cost concepts and three types of cost curves are
answer
- Total cost
- Marginal cost
- Average cost
question
Total cost is (TC)
answer
the cost of all resources used
question
Total fixed cost is (TFC)
answer
the cost of the firm's fixed inputs. Fixed costs do not change with output
question
Total Variable Cost is (TVC)
answer
the cost of the firm's variable inputs. Variable costs do not change with output
question
Total cost =
answer
Total fixed cost + Total variable cost
question
Marginal cost is (MC)
answer
the increase in total cost that results from a one unit increase in total product
question
Marginal cost =
answer
change in total cost / change in quantity
question
Over the output range with increasing marginal returns
answer
marginal cost falls as output increases (marginal product increase, marginal cost decrease)
- Utopia
question
Over the output range with diminishing marginal returns
answer
marginal cost rises as output increase (marginal product decrease, marginal cost increases)
- Dystopia
question
Average cost is (AC)
answer
The total of the average fixed cost per unit plus the average variable cost per unit
question
Average fixed cost is (AFC)
answer
total fixed cost per unit of output
question
Average variable cost is (AVC)
answer
the total variable cost per unit of output
question
Average total cost is (ATC)
answer
the total cost per unit of output
question
Average total cost =
answer
AFC + AVC
1 of 35
question
What are firms main objective
answer
profit maximization
question
Decision time frames
answer
- Short run
- Long run
question
The short run is
answer
a time frame in which the quantity of one or more resources used in production is fixed.
question
Capital in the short run is
answer
fixed
question
Other resources (labor, materials, energy) in the short run
answer
can be changed in the short run
question
The long run is
answer
a time frame in which the quantities of all resources—including capital—can be varied.
question
A sunk cost is
answer
a cost incurred by the firm and cannot be changed.
question
In relationship to a firm, sunk costs are
answer
irrelevant to a firms current decisions
question
To increase output in the short run, a firm must
answer
increase the amount of labor employed.
question
Three concepts describe the relationship between output and the quantity of labor employed:
answer
1. Total product
2. Marginal product
3. Average product
question
Total Product is
answer
the total output produced in a given period.
question
The marginal product of labor is
answer
the change in total product that results from a one-unit increase in the quantity of labor employed, with all other inputs remaining the same.
question
The average product of labor is
answer
equal to total product divided by the quantity of labor employed.
question
As the quantity of labor employed increases:
answer
- Total product increases.
- Marginal product increases initially ...
but eventually decreases.
- Average product decreases.
question
Product curves show...
answer
how a firm's total product, marginal product, and average product change as labor changes.
question
Total product curve slope
answer
always upward sloping
question
Total product curve only shifts if
answer
there is a change in technology
question
When marginal product exceeds average product
answer
average product increases
question
When marginal product is below average product
answer
average product decreases
question
When marginal product is equal to average product
answer
average product is at its maximum
question
producing more output and using more labor causes
answer
increase in costs
question
Three cost concepts and three types of cost curves are
answer
- Total cost
- Marginal cost
- Average cost
question
Total cost is (TC)
answer
the cost of all resources used
question
Total fixed cost is (TFC)
answer
the cost of the firm's fixed inputs. Fixed costs do not change with output
question
Total Variable Cost is (TVC)
answer
the cost of the firm's variable inputs. Variable costs do not change with output
question
Total cost =
answer
Total fixed cost + Total variable cost
question
Marginal cost is (MC)
answer
the increase in total cost that results from a one unit increase in total product
question
Marginal cost =
answer
change in total cost / change in quantity
question
Over the output range with increasing marginal returns
answer
marginal cost falls as output increases (marginal product increase, marginal cost decrease)
- Utopia
question
Over the output range with diminishing marginal returns
answer
marginal cost rises as output increase (marginal product decrease, marginal cost increases)
- Dystopia
question
Average cost is (AC)
answer
The total of the average fixed cost per unit plus the average variable cost per unit
question
Average fixed cost is (AFC)
answer
total fixed cost per unit of output
question
Average variable cost is (AVC)
answer
the total variable cost per unit of output
question
Average total cost is (ATC)
answer
the total cost per unit of output
question
Average total cost =
answer
AFC + AVC
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