question
Short-Run
answer
The period of time during which at least one of a firm's inputs is fixed
Characteristic: the firm does not have sufficient time to change the size of its plant
Characteristic: the firm does not have sufficient time to change the size of its plant
question
Long-Run
answer
The period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant
question
Production
answer
Any activity that results in the conversion of resources into products that can be consumed
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Production Function
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Technological relationship between inputs (resources) an outputs (how many do we product)
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Law of diminishing returns
answer
When additional units of a variable input are added to fixed inputs after a certain point, the marginal product of the variable input declines
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Main goal of a firm?
answer
Main goal of a firm is profit maximization where the firms wants to make as much money as possible
question
What are explicit and implicit cots?
answer
Explicit: Cost that business managers must take into account because they must be paid
Implicit: Expenses that managers don't have to pay but are a opportunity cost
Implicit: Expenses that managers don't have to pay but are a opportunity cost
question
Define total costs?
Define fixed costs?
Define variable costs?
Define fixed costs?
Define variable costs?
answer
Total costs: the sum of fixed and variable costs at each level of output
Fixed costs: do not vary with changes in output (rent, equipment lease)
Variable cost: increase with the level of output (labor, fuel, power)
Fixed costs: do not vary with changes in output (rent, equipment lease)
Variable cost: increase with the level of output (labor, fuel, power)
question
Relationships between
1) Marginal cost below ATC?
2) When MC and ATC intersect?
3) AVC and MC intersect
4) Relationship between MC and AFC
1) Marginal cost below ATC?
2) When MC and ATC intersect?
3) AVC and MC intersect
4) Relationship between MC and AFC
answer
1) Pulling average down. When up it pulls the average up
2) Breakeven point
3) Shutdown point
4) No relationship
2) Breakeven point
3) Shutdown point
4) No relationship
question
Why is the long run curve U shaped?
answer
Due to economies of scale, constant return to scale, diseconomies of scale
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