Week 6, Microeconomics

question

Goal of Firm

answer

To maximize attainable profit.

question

All types of firms in all types of markets

answer

Make similar decisions about how to produce.

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Two Decision Time Frames

answer

The short run, The long run

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The short run

answer

Time frame in which the quantity of firms capital land and entrepreneurship are fixed factors of production. Labor is variable.

question

Plant

answer

Fixed factors of production

question

Examples of plants

answer

Factory building, machines, generators, computers and control systems.

question

To increase output in the short run

answer

A firm must increase the quantity of a variable factor of production, which is usually labor.

question

The long run

answer

Time frame in which all factors of production can be varied. The firm can change its plant.

question

Example of long run decisions

answer

install more machines, use new machine, reorganize management, hire more labor.

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Easily reversed decisions

answer

Short run

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Decisions hard to reverse

answer

Long run

question

Sunk Cost

answer

Past expenditure on a plant that has no resale value.

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Concepts that describe relationship between output and quantity of labor

answer

Total product, marginal product, average product.

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Total Product of Labor

answer

Maximum output that a given quantity of labor can produce.

question

Marginal Product of Labor

answer

The increase in total product that results from a one-unit increase in the quantity of labor employed.

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Average Product of Labor

answer

The total product divided by the quantity of labor. Product over Labor.

question

Hiring more Labor and Marginal Product

answer

Marginal product increases initially then begins to decrease.

question

Product Curves

answer

Graphs of the relationships between employment and the product concepts.

question

Shape of Total Product Curve

answer

The curve becomes steeper then employment continues to increase and the curve becomes less steep.

question

Production Curve Separates

answer

The attainable output levels from those that are unattainable. Unattainable above curve.

question

Marginal Product Curve (total product)

answer

Height of a bare measures marginal product. It's also measured by the slope of the total product curve.

question

Slope of a Curve

answer

Change in Y axis divided by the change in X axis.

question

Marginal Product Curve (marginal product)

answer

Height of curve measures the slope of the total product curve at a point.

question

Peak of Marginal Product Curve (marginal product)

answer

Is in between two workers.

question

Every Production Process has these features

answer

Increasing marginal returns initially, diminishing marginal returns eventually

question

Increasing Marginal Returns

answer

Occur when the marginal product of an additional worker exceeds the marginal product of previous worker. Arises from increased specialization and division of labor in the production process.

question

Diminishing Marginal Returns

answer

All production processes eventually reach this. Occur when the marginal product of an additional worker is less than the marginal product of previous worker. Happens from the fact that additional workers are using the same capital and working in the saem space.

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Law of Diminishing Returns

answer

As a firm uses more of a variable factor of production with a given quantity of the fixed factor of production, the marginal product of the variable factor eventually diminishes.

question

Average Product Curve

answer

Increases at one point but then decreases as yet more workers are employed. Marginal product curve cuts this where it's highest.

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When average product is increasing

answer

Marginal product exceeds average product.

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When average product is decreasing

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Marginal product is less than average product.

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Short Run Costs

answer

Total cost, marginal cost, average cost.

question

To produce more output in the short run

answer

A firm must employ more labor which means it must increase costs.

question

answer

Total Cost

question

Total Cost

answer

Cost of all factors of production it uses.

question

Total Cost Separated Into

answer

Total Fixed cost and Total Variable Cost

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TFC

answer

Total Fixed Cost

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Total Fixed Cost

answer

Cost of the firm's fixed factors.

question

Normal profit

answer

One of the factors of total fixed cost, the opportunity cost of Cindy's entrepreneurship.

question

Quantities of Fixed Factors

answer

Don't change as output changes, so fixed cost is same at all outputs.

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TVC

answer

Total Variable Cost

question

Total Variable Cost

answer

The cost of the firms variable factors.

question

As output changes

answer

Total Variable Cost changes.

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Total Cost Formula

answer

TC = TFC + TVC

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Distance between TVC and TC curves

answer

Is equal to the total fixed cost.

question

Eventually as output increases

answer

Total variable cost and total cost increase at an increasing rate.

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Marginal Cost

answer

The increase in total cost that results from a one-unit increase in output.

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Marginal Cost Calculation

answer

Increase in total cost divided by increase in output.

question

Marginal Cost at Small Output

answer

Decreases as output increases because of greater specialization and the division of labor.

question

Marginal Cost as Output Increases

answer

Increases as output increases further because of the law of diminishing returns.

question

Successively Smaller

answer

Output produced by each individual worker

question

Average Costs of Production

answer

Average fixed cost, average variable cost, average total cost

question

AFC

answer

Average Fixed Cost

question

Average Fixed Cost

answer

Total fixed cost per unit of output

question

AVC

answer

Average variable Cost

question

Average Variable Cost

answer

Total variable cost per unit of output

question

ATC

answer

Average Total Cost

question

Average Total Cost

answer

Total cost per unit of output.

question

Average Cost concepts Calculated

answer

From total cost concepts. Divide TC, TFC, and TVC by quantity produced, then add those numbers so that TC=TFC +TVC or ATC = AFC + AVC .

question

A way of Finding Average Total Cost

answer

Average Fixed Cost plus Average Variable Cost.

question

Marginal Cost Curve intersects Average

answer

Variable cost curve and the average total cost curve at their minimum points.

question

When marginal cost is less than average variable cost or average total cost

answer

Average variable cost and average total cost is decreasing

question

When marginal cost exceeds average variable cost or average total cost

answer

Average variable cost and average total cost is increasing.

question

U shape of Average Total Cost Curve arises from the influence of

answer

Spreading total fixed cost over a larger output, eventually diminishing returns.

question

When output increases, the firm spreads

answer

Its total fixed cost over a larger output and so its average fixed cost decreases-its AFC curve slopes downward.

question

Firms cost curves come

answer

Directly from product curves.

question

Position of a Firm's Short-Run cost curves depend on

answer

Technology, Prices of Factors of Production

question

Technology

answer

When this is better, product curves shift upward and cost curves shift downward. Increases fixed cost decreases variable cost.

question

Prices of Factors of Production

answer

Increase in this increases the firms costs and shifts its cost curves.

question

Increase in fixed cost shifts

answer

Shifts the TFC and AFC curves upward and shifts the TC curve upward but leaves the AVC and TVC curves and the MC curves unchanged.

question

Increase in variable cost shifts

answer

The TVC and AVC curves upward and shifts the MC curve upward but leaves the AFC and TFC curves unchanged.

question

Variable Cost in the Long Run

answer

All of costs are variable

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Diminishing Returns is a constant factor

answer

No matter how large the plant is or how much capital it has.

question

Marginal Product of Capital

answer

The change in total product divided by the change in capital when the quantity of labor is constant. The marginal product continues to decrease, while total product increases.

question

Things that Stand Out when short run ATC of Different Plants are on graph

answer

Each short-run ATC curve is U-Shaped; For each short-run ATC curve, the larger the plant, the greater is the output at hwich aerage total cost is at a minimum.

question

Short Run ATC Curves are U shaped because

answer

As the quantity of labor increases, its marginal product initially increases and then deminishes.

question

Minimum Average Total Cost for larger plant

answer

Occurs at a greater output than it does for a smaller plant because that plant has a higher total fixed cost; therefore for any given output, a higher average fixed cost.

question

In the long run, the firm chooses a plant

answer

That enables it to produce its planned output at the lowest average total cost.

question

The economically efficient plant for producing a given output

answer

Is the one that has the lowest average total cost.

question

Long-Run Cost Curve

answer

The relationship between the lowest attainable average total cost and the output when the firm can change the plant and quantity of labor. Firm is producing a given output at the least possible cost.

question

LRAC

answer

Long Run Average Cost Curve

question

Long Run Average Cost Curve

answer

Consists of pieces of short run ATC curves in each plant.

question

Economies of Scale

answer

Features of a firm's tech that make average total cost fall as output increases.

question

LRAC Curve slopes downward

answer

When economies of scale are present.

question

Diseconomies of Scale

answer

Features of a firm's tech that make average total cost rise as output incerases.

question

LRAC Curve slopes upward

answer

When diseconomies of scale are present.

question

Constant returns to scsale

answer

Features of a firm's tech that keep average total cost constant as output increases.

question

LRAC Curve remains constant

answer

When constant returns to scale are present.

question

Economies and Diseconomies of Scale

answer

Arise from the firm's production function.

question

Firm experiences economies of scale

answer

When additional workers double total cost and more than double output making average cost decrease

question

Firm experiences diseconomies of scale

answer

When additional workers double total cost and less than double output making average cost increase.

question

Minimum Efficient Scale

answer

Smallest output at which long-run average cost reaches its lowest level.

question

The market is competitive and has many firms

answer

When the minimum efficient scale is small relative to market demand.

question

The market is not competitive and has few firms

answer

When the minimum efficient scale is large relative to market demand.

1 of 94

question

Goal of Firm

answer

To maximize attainable profit.

question

All types of firms in all types of markets

answer

Make similar decisions about how to produce.

question

Two Decision Time Frames

answer

The short run, The long run

question

The short run

answer

Time frame in which the quantity of firms capital land and entrepreneurship are fixed factors of production. Labor is variable.

question

Plant

answer

Fixed factors of production

question

Examples of plants

answer

Factory building, machines, generators, computers and control systems.

question

To increase output in the short run

answer

A firm must increase the quantity of a variable factor of production, which is usually labor.

question

The long run

answer

Time frame in which all factors of production can be varied. The firm can change its plant.

question

Example of long run decisions

answer

install more machines, use new machine, reorganize management, hire more labor.

question

Easily reversed decisions

answer

Short run

question

Decisions hard to reverse

answer

Long run

question

Sunk Cost

answer

Past expenditure on a plant that has no resale value.

question

Concepts that describe relationship between output and quantity of labor

answer

Total product, marginal product, average product.

question

Total Product of Labor

answer

Maximum output that a given quantity of labor can produce.

question

Marginal Product of Labor

answer

The increase in total product that results from a one-unit increase in the quantity of labor employed.

question

Average Product of Labor

answer

The total product divided by the quantity of labor. Product over Labor.

question

Hiring more Labor and Marginal Product

answer

Marginal product increases initially then begins to decrease.

question

Product Curves

answer

Graphs of the relationships between employment and the product concepts.

question

Shape of Total Product Curve

answer

The curve becomes steeper then employment continues to increase and the curve becomes less steep.

question

Production Curve Separates

answer

The attainable output levels from those that are unattainable. Unattainable above curve.

question

Marginal Product Curve (total product)

answer

Height of a bare measures marginal product. It's also measured by the slope of the total product curve.

question

Slope of a Curve

answer

Change in Y axis divided by the change in X axis.

question

Marginal Product Curve (marginal product)

answer

Height of curve measures the slope of the total product curve at a point.

question

Peak of Marginal Product Curve (marginal product)

answer

Is in between two workers.

question

Every Production Process has these features

answer

Increasing marginal returns initially, diminishing marginal returns eventually

question

Increasing Marginal Returns

answer

Occur when the marginal product of an additional worker exceeds the marginal product of previous worker. Arises from increased specialization and division of labor in the production process.

question

Diminishing Marginal Returns

answer

question

Law of Diminishing Returns

answer

As a firm uses more of a variable factor of production with a given quantity of the fixed factor of production, the marginal product of the variable factor eventually diminishes.

question

Average Product Curve

answer

Increases at one point but then decreases as yet more workers are employed. Marginal product curve cuts this where it's highest.

question

When average product is increasing

answer

Marginal product exceeds average product.

question

When average product is decreasing

answer

Marginal product is less than average product.

question

Short Run Costs

answer

Total cost, marginal cost, average cost.

question

To produce more output in the short run

answer

A firm must employ more labor which means it must increase costs.

question

answer

Total Cost

question

Total Cost

answer

Cost of all factors of production it uses.

question

Total Cost Separated Into

answer

Total Fixed cost and Total Variable Cost

question

TFC

answer

Total Fixed Cost

question

Total Fixed Cost

answer

Cost of the firm's fixed factors.

question

Normal profit

answer

One of the factors of total fixed cost, the opportunity cost of Cindy's entrepreneurship.

question

Quantities of Fixed Factors

answer

Don't change as output changes, so fixed cost is same at all outputs.

question

TVC

answer

Total Variable Cost

question

Total Variable Cost

answer

The cost of the firms variable factors.

question

As output changes

answer

Total Variable Cost changes.

question

Total Cost Formula

answer

TC = TFC + TVC

question

Distance between TVC and TC curves

answer

Is equal to the total fixed cost.

question

Eventually as output increases

answer

Total variable cost and total cost increase at an increasing rate.

question

Marginal Cost

answer

The increase in total cost that results from a one-unit increase in output.

question

Marginal Cost Calculation

answer

Increase in total cost divided by increase in output.

question

Marginal Cost at Small Output

answer

Decreases as output increases because of greater specialization and the division of labor.

question

Marginal Cost as Output Increases

answer

Increases as output increases further because of the law of diminishing returns.

question

Successively Smaller

answer

Output produced by each individual worker

question

Average Costs of Production

answer

Average fixed cost, average variable cost, average total cost

question

AFC

answer

Average Fixed Cost

question

Average Fixed Cost

answer

Total fixed cost per unit of output

question

AVC

answer

Average variable Cost

question

Average Variable Cost

answer

Total variable cost per unit of output

question

ATC

answer

Average Total Cost

question

Average Total Cost

answer

Total cost per unit of output.

question

Average Cost concepts Calculated

answer

From total cost concepts. Divide TC, TFC, and TVC by quantity produced, then add those numbers so that TC=TFC +TVC or ATC = AFC + AVC .

question

A way of Finding Average Total Cost

answer

Average Fixed Cost plus Average Variable Cost.

question

Marginal Cost Curve intersects Average

answer

Variable cost curve and the average total cost curve at their minimum points.

question

When marginal cost is less than average variable cost or average total cost

answer

Average variable cost and average total cost is decreasing

question

When marginal cost exceeds average variable cost or average total cost

answer

Average variable cost and average total cost is increasing.

question

U shape of Average Total Cost Curve arises from the influence of

answer

Spreading total fixed cost over a larger output, eventually diminishing returns.

question

When output increases, the firm spreads

answer

Its total fixed cost over a larger output and so its average fixed cost decreases-its AFC curve slopes downward.

question

Firms cost curves come

answer

Directly from product curves.

question

Position of a Firm's Short-Run cost curves depend on

answer

Technology, Prices of Factors of Production

question

Technology

answer

When this is better, product curves shift upward and cost curves shift downward. Increases fixed cost decreases variable cost.

question

Prices of Factors of Production

answer

Increase in this increases the firms costs and shifts its cost curves.

question

Increase in fixed cost shifts

answer

Shifts the TFC and AFC curves upward and shifts the TC curve upward but leaves the AVC and TVC curves and the MC curves unchanged.

question

Increase in variable cost shifts

answer

The TVC and AVC curves upward and shifts the MC curve upward but leaves the AFC and TFC curves unchanged.

question

Variable Cost in the Long Run

answer

All of costs are variable

question

Diminishing Returns is a constant factor

answer

No matter how large the plant is or how much capital it has.

question

Marginal Product of Capital

answer

The change in total product divided by the change in capital when the quantity of labor is constant. The marginal product continues to decrease, while total product increases.

question

Things that Stand Out when short run ATC of Different Plants are on graph

answer

Each short-run ATC curve is U-Shaped; For each short-run ATC curve, the larger the plant, the greater is the output at hwich aerage total cost is at a minimum.

question

Short Run ATC Curves are U shaped because

answer

As the quantity of labor increases, its marginal product initially increases and then deminishes.

question

Minimum Average Total Cost for larger plant

answer

Occurs at a greater output than it does for a smaller plant because that plant has a higher total fixed cost; therefore for any given output, a higher average fixed cost.

question

In the long run, the firm chooses a plant

answer

That enables it to produce its planned output at the lowest average total cost.

question

The economically efficient plant for producing a given output

answer

Is the one that has the lowest average total cost.

question

Long-Run Cost Curve

answer

The relationship between the lowest attainable average total cost and the output when the firm can change the plant and quantity of labor. Firm is producing a given output at the least possible cost.

question

LRAC

answer

Long Run Average Cost Curve

question

Long Run Average Cost Curve

answer

Consists of pieces of short run ATC curves in each plant.

question

Economies of Scale

answer

Features of a firm's tech that make average total cost fall as output increases.

question

LRAC Curve slopes downward

answer

When economies of scale are present.

question

Diseconomies of Scale

answer

Features of a firm's tech that make average total cost rise as output incerases.

question

LRAC Curve slopes upward

answer

When diseconomies of scale are present.

question

Constant returns to scsale

answer

Features of a firm's tech that keep average total cost constant as output increases.

question

LRAC Curve remains constant

answer

When constant returns to scale are present.

question

Economies and Diseconomies of Scale

answer

Arise from the firm's production function.

question

Firm experiences economies of scale

answer

When additional workers double total cost and more than double output making average cost decrease

question

Firm experiences diseconomies of scale

answer

When additional workers double total cost and less than double output making average cost increase.

question

Minimum Efficient Scale

answer

Smallest output at which long-run average cost reaches its lowest level.

question

The market is competitive and has many firms

answer

When the minimum efficient scale is small relative to market demand.

question

The market is not competitive and has few firms

answer

When the minimum efficient scale is large relative to market demand.

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Week 6, Microeconomics

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