Chapter 7-Production and Cost - Custom Scholars
Home » Flash Cards » Chapter 7-Production and Cost

# Chapter 7-Production and Cost

question
Profit
TR-TC
-a firm's managers strive to earn the highest possible profit
question
Production
the process of combining inputs to make goods and services
question
an organization owned and operated by private individuals, that specializes in production
question
Technology
the methods available for combining inputs to produce a good or service
-A firm's technology refers to the methods it can use to turn inputs into outputs (produced goods or services).
question
Long Run
a time horizon long enough for a firm to vary all of its inputs
question
Variable Input
an input whose usage can change over some period
question
Short Run
a time horizon during which at least one of the firm's inputs cannot be varied
question
Fixed Input
an input whose quantity must remain constant over some time period
question
Total Product
the maximum quantity of output that can be produced from a given combination of inputs
question
Marginal Product of Labor
the additional output produced when one more worker is hired
-The Marginal Product of Labor (MPL) is the change in total product (ΔQ) divided by the change in the number of workers employed (ΔL)
-MPL=ΔQ/ΔL
-The MPL tells us the rise in output produced when one
-When the marginal product of labor (MPL) rises, marginal cost (MC) falls. When MPL falls, MC rises. Since MPL ordinarily rises and then falls, MC will do the opposite: It will fall and then rise. Thus, the MC curve is U-shaped.
question
Increasing Marginal Returns to Labor
the marginal product of labor increases as more labor is hired
question
Diminishing Marginal Returns to Labor
the marginal product of labor decreases as more labor is hired
question
Law of Diminishing (Marginal) Returns
as more and more of any input is added to a fixed amount of other inputs ,its marginal product will eventually decline
-The law of diminishing (marginal) returns states that as we continue to add more of any one input (holding the other inputs constant), its marginal product will eventually decline.
question
Sunk Cost
a cost that has been paid or must be paid, regardless of any future action being considered
-Sunk costs should not be considered when making decisions
question
Explicit
Rent paid out
-Interest on loans
-Managers' salaries
-Hourly workers wage
-Cost of raw materials
question
Implicit
Opportunity cost of:
-Owner's land and buildings (rent forgone)
-Owner's money (investment income forgone)
-Owner's time (labor income forgone)
question
The Least-Cost Rule
a firm produces any given output level using the lowest cost combination of inputs available
question
Fixed Cost (FC)
costs of fixed inputs, which remain constant as output changes
question
Variable Cost (VC)
costs of variable inputs, which change with output
question
Total Fixed Cost (TFC)
the cost of all inputs that are fixed in the short run
question
Total Variable Cost (TVC)
the cost of all variable inputs used in producing a particular level of output
question
Total Cost (TC)
the costs of all inputs--fixed and variable--used to produce a given output level in the short run
-Total Cost (TC) is the sum of all fixed and variable costs
-TC=TFC+TVC
question
Average Fixed Cost (AFC)
total fixed cost divided by the quantity of output produced
-The firm's average fixed cost (AFC) is its fixed cost divided by the quantity (Q) of output:
-AFC=TFC/Q
question
Average Variable Cost (AVC)
total variable cost divided by the quantity of output produced
-Average Variable Cost (AVC) is the cost of the variable inputs per unit of output:
-AVC=TVC/Q
-The U-shape of the AVC curve results from the U-shape of the MC curve, which in turn is based on increasing and then diminishing marginal returns to labor.
question
Average Total Cost (ATC)
total cost divided by the quantity of output produced
-Average Total Cost (ATC) is the total cost per unit of output:
-ATC=TC/Q
-The U-shape of the ATC curve results from the behavior of both AVC and AFC. At low levels of output, AVC and AFC are both falling, so the ATC curve slopes downward. At higher levels of output, rising AVC overcomes falling AFC, and the ATC curve slopes upward.
question
Marginal Cost (MC)
the increase in total cost from producing one more unit of output
-Marginal Cost (MC) is the change in total cost (ΔTC) divided by the change in output (ΔQ):
-MC=ΔTC/ΔQ
-The MC curve crosses both the AVC curve and the ATC curve at their respective minimum points.
-When the marginal product of labor (MPL) rises, marginal cost (MC) falls. When MPL falls, MC rises. Since MPL ordinarily rises and then falls, MC will do the opposite: It will fall and then rise. Thus, the MC curve is U-shaped.
question
Long-Run Total Cost (LRTC)
the cost of producing each quantity of output when all inputs are variable and the least-cost input mix is chosen
-The long-run total cost of producing a given level of output can be less than or equal to, but not greater than, the short-run total cost (LRTC≤TC)
question
Long-Run Average Total Cost (LRATC)
the cost per unit of producing each quantity of output in the long run, when all inputs are variable
-The long-run average cost of producing a given level of output can be less than or equal to, but not greater than, the short-run average total cost (LRATC≤ATC)
-A firm's LRATC curve combines portions of each ATC curve available to the firm in the long run. For each output level, the firm will always choose to operate on the ATC curve with the lowest possible cost
-In the short-run, a firm can only move along its current ATC curve. In the long-run, however, it can move from one ATC curve to another by varying the size of its plants. As it does so, it will also be moving along its LRATC curve
question
Plant
the collection of fixed inputs at a firm's disposal
question
Economies of Scale
long-run average total cost decreases as output increases
-When long-run total cost rises proportionately less than output, production is characterized by economies of scale, and the LRATC curve slopes downward.
question
Lumpy Inputs
an input whose quantity cannot be increased gradually as output increases, but must instead be adjusted in large jumps
question
Diseconomies of Scale
long-run average total cost increases as output increases
-When long-run total cost rises more than in proportion to output, there are diseconomies of scale, and the LRATC curve slopes upward
question
Constant Returns to Scale
long-run average total cost is unchanged as output increases
-When both output and long-run total cost rise by the same proportion, production is characterized by constant returns to scale, and the LRATC curve is flat
question
Minimum Efficient Scale (MES)
the lowest output level at which the firm's LRATC curve hits bottom
question
What is the U-shape of the AVC curve based on?
-The U-shape of the AVC curve results form the U-shape of the MC curve, which in turn is based on increasing and then diminishing marginal returns to labor.
question
What does the U-shape of the ATC result from?
-The U-shape of the ATC curve results from the behavior of both AVC and AFC. At low levels of output, AVC and AFC are both falling, so the ATC curve slopes downward. At higher levels of output, rising AVC overcomes falling AFC, and the ATC curve slopes upward.
question
Does the MC curve cross the AVC and ATC curve at their minimums or maximum points?
-The MC curve crosses both the AVC curve and the ATC curve at their respective minimum points.
question
Are there fixed inputs in the long run?
No, there are no fixed inputs/costs in the long run, just variable inputs/costs
question
Is the LRTC of producing a given level of output less than or greater than the SRTC?
-The long-run total cost of producing a given level of output can be less than or equal to, but not greater than, the short-run total cost (LRTC≤TC)
question
Is the LRATC of producing a given level of output less than or greater than the SRTC?
-The long-run average cost of producing a given level of output can be less than or equal to, but not greater than, the short-run average total cost (LRATC≤ATC)
question
Will the firm always choose to operate on the ATC curve with the lowest or highest possible cost?
For each output level, the firm will always choose to operate on the ATC curve with the lowest possible cost
question
Does the LRATC curve slope upward or downward when LRTC rises less than output--economies of scale?
-When long-run total cost rises proportionately less than output, production is characterized by economies of scale, and the LRATC curve slopes downward.
question
When is the LRATC curve flat?
the LRATC curve is flat with constant returns to scale
1 of 43
question
Profit
TR-TC
-a firm's managers strive to earn the highest possible profit
question
Production
the process of combining inputs to make goods and services
question
an organization owned and operated by private individuals, that specializes in production
question
Technology
the methods available for combining inputs to produce a good or service
-A firm's technology refers to the methods it can use to turn inputs into outputs (produced goods or services).
question
Long Run
a time horizon long enough for a firm to vary all of its inputs
question
Variable Input
an input whose usage can change over some period
question
Short Run
a time horizon during which at least one of the firm's inputs cannot be varied
question
Fixed Input
an input whose quantity must remain constant over some time period
question
Total Product
the maximum quantity of output that can be produced from a given combination of inputs
question
Marginal Product of Labor
the additional output produced when one more worker is hired
-The Marginal Product of Labor (MPL) is the change in total product (ΔQ) divided by the change in the number of workers employed (ΔL)
-MPL=ΔQ/ΔL
-The MPL tells us the rise in output produced when one
-When the marginal product of labor (MPL) rises, marginal cost (MC) falls. When MPL falls, MC rises. Since MPL ordinarily rises and then falls, MC will do the opposite: It will fall and then rise. Thus, the MC curve is U-shaped.
question
Increasing Marginal Returns to Labor
the marginal product of labor increases as more labor is hired
question
Diminishing Marginal Returns to Labor
the marginal product of labor decreases as more labor is hired
question
Law of Diminishing (Marginal) Returns
as more and more of any input is added to a fixed amount of other inputs ,its marginal product will eventually decline
-The law of diminishing (marginal) returns states that as we continue to add more of any one input (holding the other inputs constant), its marginal product will eventually decline.
question
Sunk Cost
a cost that has been paid or must be paid, regardless of any future action being considered
-Sunk costs should not be considered when making decisions
question
Explicit
Rent paid out
-Interest on loans
-Managers' salaries
-Hourly workers wage
-Cost of raw materials
question
Implicit
Opportunity cost of:
-Owner's land and buildings (rent forgone)
-Owner's money (investment income forgone)
-Owner's time (labor income forgone)
question
The Least-Cost Rule
a firm produces any given output level using the lowest cost combination of inputs available
question
Fixed Cost (FC)
costs of fixed inputs, which remain constant as output changes
question
Variable Cost (VC)
costs of variable inputs, which change with output
question
Total Fixed Cost (TFC)
the cost of all inputs that are fixed in the short run
question
Total Variable Cost (TVC)
the cost of all variable inputs used in producing a particular level of output
question
Total Cost (TC)
the costs of all inputs--fixed and variable--used to produce a given output level in the short run
-Total Cost (TC) is the sum of all fixed and variable costs
-TC=TFC+TVC
question
Average Fixed Cost (AFC)
total fixed cost divided by the quantity of output produced
-The firm's average fixed cost (AFC) is its fixed cost divided by the quantity (Q) of output:
-AFC=TFC/Q
question
Average Variable Cost (AVC)
total variable cost divided by the quantity of output produced
-Average Variable Cost (AVC) is the cost of the variable inputs per unit of output:
-AVC=TVC/Q
-The U-shape of the AVC curve results from the U-shape of the MC curve, which in turn is based on increasing and then diminishing marginal returns to labor.
question
Average Total Cost (ATC)
total cost divided by the quantity of output produced
-Average Total Cost (ATC) is the total cost per unit of output:
-ATC=TC/Q
-The U-shape of the ATC curve results from the behavior of both AVC and AFC. At low levels of output, AVC and AFC are both falling, so the ATC curve slopes downward. At higher levels of output, rising AVC overcomes falling AFC, and the ATC curve slopes upward.
question
Marginal Cost (MC)
the increase in total cost from producing one more unit of output
-Marginal Cost (MC) is the change in total cost (ΔTC) divided by the change in output (ΔQ):
-MC=ΔTC/ΔQ
-The MC curve crosses both the AVC curve and the ATC curve at their respective minimum points.
-When the marginal product of labor (MPL) rises, marginal cost (MC) falls. When MPL falls, MC rises. Since MPL ordinarily rises and then falls, MC will do the opposite: It will fall and then rise. Thus, the MC curve is U-shaped.
question
Long-Run Total Cost (LRTC)
the cost of producing each quantity of output when all inputs are variable and the least-cost input mix is chosen
-The long-run total cost of producing a given level of output can be less than or equal to, but not greater than, the short-run total cost (LRTC≤TC)
question
Long-Run Average Total Cost (LRATC)
the cost per unit of producing each quantity of output in the long run, when all inputs are variable
-The long-run average cost of producing a given level of output can be less than or equal to, but not greater than, the short-run average total cost (LRATC≤ATC)
-A firm's LRATC curve combines portions of each ATC curve available to the firm in the long run. For each output level, the firm will always choose to operate on the ATC curve with the lowest possible cost
-In the short-run, a firm can only move along its current ATC curve. In the long-run, however, it can move from one ATC curve to another by varying the size of its plants. As it does so, it will also be moving along its LRATC curve
question
Plant
the collection of fixed inputs at a firm's disposal
question
Economies of Scale
long-run average total cost decreases as output increases
-When long-run total cost rises proportionately less than output, production is characterized by economies of scale, and the LRATC curve slopes downward.
question
Lumpy Inputs
an input whose quantity cannot be increased gradually as output increases, but must instead be adjusted in large jumps
question
Diseconomies of Scale
long-run average total cost increases as output increases
-When long-run total cost rises more than in proportion to output, there are diseconomies of scale, and the LRATC curve slopes upward
question
Constant Returns to Scale
long-run average total cost is unchanged as output increases
-When both output and long-run total cost rise by the same proportion, production is characterized by constant returns to scale, and the LRATC curve is flat
question
Minimum Efficient Scale (MES)
the lowest output level at which the firm's LRATC curve hits bottom
question
What is the U-shape of the AVC curve based on?
-The U-shape of the AVC curve results form the U-shape of the MC curve, which in turn is based on increasing and then diminishing marginal returns to labor.
question
What does the U-shape of the ATC result from?
-The U-shape of the ATC curve results from the behavior of both AVC and AFC. At low levels of output, AVC and AFC are both falling, so the ATC curve slopes downward. At higher levels of output, rising AVC overcomes falling AFC, and the ATC curve slopes upward.
question
Does the MC curve cross the AVC and ATC curve at their minimums or maximum points?
-The MC curve crosses both the AVC curve and the ATC curve at their respective minimum points.
question
Are there fixed inputs in the long run?
No, there are no fixed inputs/costs in the long run, just variable inputs/costs
question
Is the LRTC of producing a given level of output less than or greater than the SRTC?
-The long-run total cost of producing a given level of output can be less than or equal to, but not greater than, the short-run total cost (LRTC≤TC)
question
Is the LRATC of producing a given level of output less than or greater than the SRTC?
-The long-run average cost of producing a given level of output can be less than or equal to, but not greater than, the short-run average total cost (LRATC≤ATC)
question
Will the firm always choose to operate on the ATC curve with the lowest or highest possible cost?
For each output level, the firm will always choose to operate on the ATC curve with the lowest possible cost
question
Does the LRATC curve slope upward or downward when LRTC rises less than output--economies of scale?
-When long-run total cost rises proportionately less than output, production is characterized by economies of scale, and the LRATC curve slopes downward.
question
When is the LRATC curve flat?
the LRATC curve is flat with constant returns to scale

## Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
\$26
The price is based on these factors:
Number of pages
Urgency
Basic features
• Free title page and bibliography
• Unlimited revisions
• Plagiarism-free guarantee
• Money-back guarantee
On-demand options
• Writer’s samples
• Part-by-part delivery
• Overnight delivery
• Copies of used sources
Paper format
• 275 words per page
• 12 pt Arial/Times New Roman
• Double line spacing
• Any citation style (APA, MLA, Chicago/Turabian, Harvard)

## Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

### Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

### Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

### Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.