question
Explicit Costs
answer
The monetary payments it makes to those who supply labor services, materials, fuel, transportation services... etc...
question
Implicit Costs
answer
The opportunity costs of using its self-owned, self- employed resources
question
Normal Profit
answer
(A cost) The payment you could otherwise receive for performing entrepreneurial functions
The cost of doing business
The cost of doing business
question
Economic Profit
answer
Total revenue less economic costs (explicit and implicit, including normal profit)
question
Accounting Profit
answer
Total revenue less economic costs
question
Total Product
answer
The total quantity, or total output, of a particular good producted
question
Marginal Product
answer
The extra output or added product associated with adding a unit of a variable resource to the production process
= change in total product/change in labor input
= change in total product/change in labor input
question
Average Product
answer
Output per unit of labor input
= Total product/ units of labor
= Total product/ units of labor
question
Law of Diminishing Marginal Returns
answer
As successive units of a variable resource are added to a fixed resource, beyond some point the extra, or marginal product that can be attributed to each additional unit of the variable resource will decline
Too many cooks in the kitchen
Too many cooks in the kitchen
question
Total Product Graph
answer
Rises initially at an increasing rate, then increases at a diminishing rate, then falls
question
Marginal Product Graph
answer
Slope of the TP curve
Where the total product is increasing at an increasing rate, marginal product is rising because extra units of labor are adding larger and larger amounts to total product
Where total product is increasing at a diminishing rate, marginal product is positive but falling because additional units of labor add less and less to total product then did the previous unit
Where total product is at a max. marginal product is zero
Where total product declines, marginal product is negative
Where the total product is increasing at an increasing rate, marginal product is rising because extra units of labor are adding larger and larger amounts to total product
Where total product is increasing at a diminishing rate, marginal product is positive but falling because additional units of labor add less and less to total product then did the previous unit
Where total product is at a max. marginal product is zero
Where total product declines, marginal product is negative
question
Average Product Graph
answer
Increases, reaches a max, and then decreases as more and more units of labor are added to the fixed plant
Marginal product intersects average product where average product is at a maximum
Marginal product intersects average product where average product is at a maximum
question
Fixed Costs
answer
Costs that in total do not vary with changes in output
Must be paid even if its output is zero
Must be paid even if its output is zero
question
Variable Costs
answer
Costs that change with the level of output
As production begins, VC will for a time increase by a decreasing amount, however, as output increases, VC rises by increasing amounts--- because as MP increases, smaller and smaller increases in the amounts of variable resources are needed to produce successive units of output- so VC of successive units of output fall (increase at a diminishing rate)
But when MP begins to decline, larger and larger amounts of variable resources are needed to produce successive units of outputs- so VC of successive units of output increase
As production begins, VC will for a time increase by a decreasing amount, however, as output increases, VC rises by increasing amounts--- because as MP increases, smaller and smaller increases in the amounts of variable resources are needed to produce successive units of output- so VC of successive units of output fall (increase at a diminishing rate)
But when MP begins to decline, larger and larger amounts of variable resources are needed to produce successive units of outputs- so VC of successive units of output increase
question
Total Costs
answer
The sum of fixed cost and variable cost at each level of output
question
Average Fixed Cost
answer
=TFC/Q
Must decline as output increases, because TFC is spread over a larger and larger output
Must decline as output increases, because TFC is spread over a larger and larger output
question
Average Variable Cost
answer
=TVC/Q
Decrease initially, reaches a minimum, and then increases
Because marginal returns increase initially, it takes fewer and fewer additional variable resources to produce each unit- so AVC declines
As diminishing returns require more and more variable resources to produce each additional unit of output- AVC rises
Decrease initially, reaches a minimum, and then increases
Because marginal returns increase initially, it takes fewer and fewer additional variable resources to produce each unit- so AVC declines
As diminishing returns require more and more variable resources to produce each additional unit of output- AVC rises
question
Average Total Cost
answer
=TC/Q
question
Marginal Cost
answer
The extra or additional cost of producing 1 more unit of output
=change in TC/ change in Q
=change in TC/ change in Q
question
Marginal Cost Graph
answer
First declines sharply, reaches a minimum, and then rises
Reflects the fact that variable costs, and total cost, increase first by decreasing amounts and then by increasing amounts
The marginal cost of each additional unit of output will fall as long as the marginal product of each additional worker is rising because MC= cost of extra workers/ his or her marginal product
Intersects both AVC and ATC curves at their minimum points
Reflects the fact that variable costs, and total cost, increase first by decreasing amounts and then by increasing amounts
The marginal cost of each additional unit of output will fall as long as the marginal product of each additional worker is rising because MC= cost of extra workers/ his or her marginal product
Intersects both AVC and ATC curves at their minimum points
question
If a fixed cost changes
answer
AFC shifts, ATC shifts---- MC and AVC do NOT
question
If a variable cost changes
answer
AVC, ATC, and MC would rise---- AFC would NOT
question
Discovery of a more efficient technology
answer
Increases the productivity of all inputs, so cost figures will decline
question
What happens to ATC when a firm expands
answer
For a time, successive larger plants will lower ATV, however, the building of a still larger plant may cause ATC to rise
question
Economies of Scale
answer
Explains the down slopping part of the long run ATC curve
question
Factors of Economies of Scale
answer
Labor Specialization, Managerial Specialization, and Efficient Capital
question
Labor Specialization
answer
Increased specialization in the use of labor becomes more achievable as a plant increases in size
question
Managerial Specialization
answer
Large scale production means better use of and greater specialization in management
question
Efficient Capital
answer
Small firms cannot often afford the most efficient equpiment
question
Economies of Scale have
answer
Lower ATC for the firm that is able to expand its scale of operation
An increase in resources will cause a more than proportionate increase in output
An increase in resources will cause a more than proportionate increase in output
question
Diseconomies of Scale
answer
In time, the expansion of a firm may lead to diseconomies of scale and therefore higher ATC
An increase in inputs will cause a less than proportionate increase in output
An increase in inputs will cause a less than proportionate increase in output
question
Main Factor for Diseconomies of Scale
answer
The difficultly of efficiently controlling and coordinating a firm's operations as it becomes a large scale producer
question
Constant Returns to Scale
answer
Long run average cost does not change
A given percentage change in inputs will cause a proportionate increase in output- ATC is constant
A given percentage change in inputs will cause a proportionate increase in output- ATC is constant
question
Minimum Efficient Scale
answer
The lowest level of output at which a firm can minimize long-run average costs
question
With an extended range of constant returns to scale
answer
Relatively large and relatively small firms can coexist in an industry and be equally successful
Because firms can be equally efficient within a great range of output
Because firms can be equally efficient within a great range of output
question
Where economies of scale prevail over a wide range of outputs
answer
Efficient products will be achieved with a few large-scale producers
Because small firms cannot realize the minimum efficient scale and will not be able to compete
Because small firms cannot realize the minimum efficient scale and will not be able to compete
question
Natural Monopoly
answer
Where economies of scale might extend beyond the market size, where ATC is minimized when only one firm produces the particular good or service
question
Where economies of scale are few and diseconomies of scale come into play quickly
answer
The MES occurs at a very low level of output
Supports a large number of relatively small producers
Supports a large number of relatively small producers
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
