chapter 8 economics

question

input

answer

workers, machines, natural resources; what is taken in to produce something

question

output

answer

goods and services; what is produced

question

short run

answer

a period of time in which at least one of the firm's inputs are fixed

for example, technology and the size of the physical plant are fixed in the short run, but workers are variable.

question

long run

answer

a period of time in which a firm can vary all its inputs

for example: they can adopt new technology, and increase/decrease the size of the physical plant

question

total cost

answer

the cost of all the inputs a firm uses in production

question

fixed costs

answer

the cost of fixed inputs (remain constant as output changes)

for example: payments for factory, cost of insurance, cost of advertising

question

variable costs

answer

the cost of variable inputs (costs change as output changes)

for example: labor costs, raw materials, cost of electricity

question

implicit costs

answer

a non-monetary opportunity cost
- when starting a new business wage at other job
- 3,000 dollars of interest
- economic depreciation

question

explicit cost

answer

a cost that involves spending money (accounting cost)

example: wages of workers, payment for rent, payment for utilities, furniture

question

Technology

answer

The processes the firm uses to turn inputs into outputs of goods and service.
The firm's technology relies on the skill of its managers, the training of its workers, and the speed and efficiency of its machinery and equipment. A pizza restaurant's technology of pizza production includes not only the capacity of its pizza ovens, but also how quickly the cooks can prepare the pizza

question

Positive Technological Change

answer

a firm is able to produce more output using the same inputs, or the same output using fewer inputs.

Example: a firm's managers increase production or sales by rearranging the layout of the retail store or the floor of the factory. They do this by rearranging the layout of the retail store or the floor of the factory by creating a training program for workers or by installing faster or more reliable machinery or equipment.

question

Negative Technological Change:

answer

A firm hires less skilled workers, or a hurricane does damage to its facilities. The quantity of output it can produce from a given quantity of inputs may decline.

question

why analyze short and long run?

answer

When firms analyze the relationship between their level of production and their costs, they separate the time period involved into the short run and the long run.

question

how is the length of short and long run determined

answer

The actual length of the calendar varies from firm to firm, before the short run becomes the long run. A pizza restaurant may have a short run of just a few weeks before it is able to increase its physical plant by adding another pizza oven and more furniture. General Motors may have a short run of a year or more before it can increase the capacity of one of its automobile assembly plants by installing new equipment.

question

Economic depreciation:

answer

the change in the market value of capital over a given period

jill buys chairs for 50,000. the difference between what Jill paid for her capital at the beginning of the year and what she would receive if she sold the capital at the end of the year. If Jill could sell the capital at 40,000, then 10,000 in economic depreciation represents another implicit cost. The 50,000 she spent on capital is not a cost because she still has equipment, although now it is only worth 40,000.

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Marginal Product of Labor:

answer

The additional output a firm produces as a result of hiring one more worker

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Law of Diminishing Returns

answer

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

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Graphing Production

answer

When the marginal product of labor is increasing, total output increases at an increasing rate

When the marginal product of labor is decreasing, but still positive, total output increases but at a decreasing rate

question

economies of scale (increasing returns to scale)

answer

an increase in a firm's scale of production leads to lower costs per unit produced

The situation in which a firm's long run average cost falls as it increases the quantity of the output it produces

Economies of scale do not continue indefinitely as the firm increases its output. The long run average cost curve in most industries has a flat segment that often stretches over a substantial range of output. The automobile factory producing 200,000 cars per year and the automobile factory producing 400,000 cars per year have the same average cost. Over this range of output, firms in the industry experience constant returns to scale

question

Constant returns to scale

answer

the situation in which a firm's long run average costs remain unchanged as it increases output

question

Minimum efficient scale:

answer

As these firms increase their output, they increase their inputs proportionally. The level of output at which all economies of scale are exhausted is the minimum efficient scale.

The level of output at which all economies of scale are exhausted. Example: the automobile factory producing 200,000 cars per year has reached the minimum efficient scale. Firms that produce at less than the minimum efficient scale may have difficulty surviving because they will be producing output at a higher cost than competitors.

question

Diseconomies of scale:

answer

The situation in which a firm's long run average cost rises as the firm increases output.

Very large automobile factories experience increasing average costs as managers begin to have difficulty coordinating the operation of the factory. Example: production above 400,000 cars per year, experience diseconomies of scale

1 of 22

question

input

answer

workers, machines, natural resources; what is taken in to produce something

question

output

answer

goods and services; what is produced

question

short run

answer

a period of time in which at least one of the firm's inputs are fixed

for example, technology and the size of the physical plant are fixed in the short run, but workers are variable.

question

long run

answer

a period of time in which a firm can vary all its inputs

for example: they can adopt new technology, and increase/decrease the size of the physical plant

question

total cost

answer

the cost of all the inputs a firm uses in production

question

fixed costs

answer

the cost of fixed inputs (remain constant as output changes)

for example: payments for factory, cost of insurance, cost of advertising

question

variable costs

answer

the cost of variable inputs (costs change as output changes)

for example: labor costs, raw materials, cost of electricity

question

implicit costs

answer

a non-monetary opportunity cost
- when starting a new business wage at other job
- 3,000 dollars of interest
- economic depreciation

question

explicit cost

answer

a cost that involves spending money (accounting cost)

example: wages of workers, payment for rent, payment for utilities, furniture

question

Technology

answer

question

Positive Technological Change

answer

question

Negative Technological Change:

answer

A firm hires less skilled workers, or a hurricane does damage to its facilities. The quantity of output it can produce from a given quantity of inputs may decline.

question

why analyze short and long run?

answer

When firms analyze the relationship between their level of production and their costs, they separate the time period involved into the short run and the long run.

question

how is the length of short and long run determined

answer

question

Economic depreciation:

answer

question

Marginal Product of Labor:

answer

The additional output a firm produces as a result of hiring one more worker

question

Law of Diminishing Returns

answer

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

question

Graphing Production

answer

question

economies of scale (increasing returns to scale)

answer

question

Constant returns to scale

answer

the situation in which a firm's long run average costs remain unchanged as it increases output

question

Minimum efficient scale:

answer

question

Diseconomies of scale:

answer

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chapter 8 economics

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