Chapter 4 : Costs of Production - Assignment Essays %

question

Short Run(SR) vs. Long Run(LR)

answer

SR: time period when at least one input is fixed

LR: all inputs are variable

question

Total Fixed Costs(TFC)

answer

costs that do not vary with output(also called overhead costs)

question

Total Variable Costs(TVC)

answer

costs that vary with output

question

Total Costs(TC)

answer

Fixed costs + variable costs (TFC+TVC=)

question

Graph TFC/TVC/TC

answer

AFC = TFC / Q

question

Average Fixed Cost(AFC)

answer

AVC = TVC / Q

question

Average Variable Cost(AVC)

answer

ATC = TC / Q = (AFC + AVC)

question

Average Total Cost(ATC)

answer

change in total costs when one more unit of output is produced

question

Verbal definition of MC

answer

MC = ΔTC / ΔQ = ΔTVC / ΔQ

- implies the ΔTC = ΔT

question

Marginal Cost(MC)

answer

minimum points

question

Graph of AFC, AVC, ATC, and MC

answer

- technology improvements

- changes in resources prices

- changes in business taxes

question

Note MC intersects AVC and ATC at their

answer

This curve shows the minimum cost per unit of producing each level of output when any desired size of factory can be constructed

question

Shifts in the SR costs curves: What will shift the SR cost curves

answer

1. economies of scale

2. constant returns to scale

3. diseconomies of scale

question

Long run average total curve (LRATC)

answer

def - as production increases, cost per unite decreases and so LRATC is downward-sloping

question

3 regions of LRATC

answer

- specialization of labor and managements

- efficient capital

- fixed cost of design and development

question

LRATC - region - economies of scale

answer

def: as production increases, cost per unit stay the same and so the LRATC is horizontal

question

Why do economies of sale occur?

answer

the percentage change in output is equal to the percentage change in inputs

question

LRATC - region - constant returns to sale

answer

def: as production increases, cost per unit increases and so the LRATC is upward-sloping

question

Why do constant returns to scale occur?

answer

firm is so large that management becomes difficult

question

LRATC - region- diseconomies of scale

answer

monetary(relating to money or currency) payments made to purchase resources

question

Why do diseconomies of scale occur?

answer

1. cost for resources used in production where no monetary payment is made

2. the value of the firm's resources in their best alternative use

question

Graph of LRATC

answer

(total) revenues - explicit cost

question

Explicit costs

answer

(total) revenues - (explicit costs + implicit costs)

question

implicit costs(2 def)

answer

underestimate the economic cost and so overestimate profits

question

accounting profit

answer

firms are making a normal profit

question

economic profit

answer

minimum profit necessary to keep a firm in operation

question

accounting profits

answer

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question

What if economic profits equal ?

answer

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question

normal profit

answer

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1 of 29

question

Short Run(SR) vs. Long Run(LR)

answer

SR: time period when at least one input is fixed

LR: all inputs are variable

question

Total Fixed Costs(TFC)

answer

costs that do not vary with output(also called overhead costs)

question

Total Variable Costs(TVC)

answer

costs that vary with output

question

Total Costs(TC)

answer

Fixed costs + variable costs (TFC+TVC=)

question

Graph TFC/TVC/TC

answer

AFC = TFC / Q

question

Average Fixed Cost(AFC)

answer

AVC = TVC / Q

question

Average Variable Cost(AVC)

answer

ATC = TC / Q = (AFC + AVC)

question

Average Total Cost(ATC)

answer

change in total costs when one more unit of output is produced

question

Verbal definition of MC

answer

MC = ΔTC / ΔQ = ΔTVC / ΔQ

- implies the ΔTC = ΔT

question

Marginal Cost(MC)

answer

minimum points

question

Graph of AFC, AVC, ATC, and MC

answer

- technology improvements

- changes in resources prices

- changes in business taxes

question

Note MC intersects AVC and ATC at their

answer

This curve shows the minimum cost per unit of producing each level of output when any desired size of factory can be constructed

question

Shifts in the SR costs curves: What will shift the SR cost curves

answer

1. economies of scale

2. constant returns to scale

3. diseconomies of scale

question

Long run average total curve (LRATC)

answer

def - as production increases, cost per unite decreases and so LRATC is downward-sloping

question

3 regions of LRATC

answer

- specialization of labor and managements

- efficient capital

- fixed cost of design and development

question

LRATC - region - economies of scale

answer

def: as production increases, cost per unit stay the same and so the LRATC is horizontal

question

Why do economies of sale occur?

answer

the percentage change in output is equal to the percentage change in inputs

question

LRATC - region - constant returns to sale

answer

def: as production increases, cost per unit increases and so the LRATC is upward-sloping

question

Why do constant returns to scale occur?

answer

firm is so large that management becomes difficult

question

LRATC - region- diseconomies of scale

answer

monetary(relating to money or currency) payments made to purchase resources

question

Why do diseconomies of scale occur?

answer

1. cost for resources used in production where no monetary payment is made

2. the value of the firm's resources in their best alternative use

question

Graph of LRATC

answer

(total) revenues - explicit cost

question

Explicit costs

answer

(total) revenues - (explicit costs + implicit costs)

question

implicit costs(2 def)

answer

underestimate the economic cost and so overestimate profits

question

accounting profit

answer

firms are making a normal profit

question

economic profit

answer

minimum profit necessary to keep a firm in operation

question

accounting profits

answer

undefined

question

What if economic profits equal ?

answer

undefined

question

normal profit

answer

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