E251 Chapter 11 - Assignment Essays

question

Fixed Input

answer

Any resource for which the quantity cannot change during the period of time under consideration.

question

A firms plant

answer

fixed inputs such as management organization structure, level of technology, buildings and large equipment.

question

Variable Input

answer

Any resource for which the quantity can change during the period of time under consideration
e.g. the company workers

question

Short run

answer

a period of time where there is at least one fixed input

question

Long run

answer

a period of time long enough so that all inputs are variable. Long run decisions are not so easily reversed so a firm must live with the plant size that it has created for some time.

question

Sunk cost

answer

a cost that has already been committed and cannot be recovered

question

Production function

answer

The relationship between maximum amounts of output that a firm can produce and various quantities of inputs

question

Marginal product

answer

the change in total output produced by adding one unit of a variable input, with all other being held constant. E.g. hiring 10 more people means the factory can produce 100 more shirts

question

Law of diminishing returns

answer

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

question

Average product

answer

the average amount produced by each unit of a variable factor of production

question

Relationship between Average and Marginal Product Curves

answer

Marginal Product and Total product eventually intersect each other and that point is maximum average product

question

When is the average product at its maximum?

answer

When marginal product = average product

question

Average product curve

answer

shows the average product that is produced adding a variable input at each unit of the variable input

question

point of diminishing returns

answer

a point at which the level of profits gained is less than the amount of money or energy invested

question

Where would firms likely operate on the average product curve?

answer

Between the point of diminishing returns (the max of MP) and where MP = 0

question

Total Fixed Cost

answer

costs that do not vary as output varies and that must be paid even if output is zero.
e.g. a company leases office space for $10,000 per month

question

Total Variable Cost

answer

Costs that a zero when output is zero and vary as output varies
e.g. packaging costs, labor, raw materials

question

Total costs

answer

the same of total fixed cost and total variable costs at each level of output

question

Average Fixed Costs

answer

total fixed cost divided by the quantity of output produced
AFC = TFC/Q

question

Average Variable Cost

answer

Total variable cost divided by the quantity of output produced
AVC = TVC/Q

question

Average Total Costs

answer

Total cost divided by the quantity of output produced
ATC = TC/Q

question

Marginal Costs

answer

The change in total cost when one additional unit is produced
MC = ΔTC/ΔQ

question

Cost Curves

answer

The cost curves shift with changes in technology or changes in resource prices due to taxes/ government regulation

question

Shifts in Cost Curves

answer

If resource prices fall, cost curves will shift downwards

An increase in technology that allows more output to be produced shifts the cost curve downward

question

Shifting Cost Curves Downward

answer

Higher taxes or more regulation will shift the cost curve upward

question

Shifting Cost Curves Upward

answer

the additional cost of producing an additional unit of output when all inputs, including plant size, can be varied

question

Long Run Marginal Cost Curve

answer

the lowest per unit cost of producing any level of output when the usage of all inputs can be varied

question

Long Run Average Total Cost

answer

1) Economies of scale
2) Diseconomies of scale
3) Constant returns to scale
4) minimum efficient scale

question

Different Scales of Production

answer

a situation in which the long-run average cost of production falls as the firm increases output. The main source of economies of scale is great specialization of both labor and capital.

question

Economies of scale

answer

the situation in which a firm's long-run average costs rise as the firm increases output

question

Diseconomies of scale

answer

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

question

Constant returns to scale

answer

the smallest quantity of output at which the long-run average cost reaches its lowest level

question

Minimum efficient scale

answer

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question

Fixed Input

answer

Any resource for which the quantity cannot change during the period of time under consideration.

question

A firms plant

answer

fixed inputs such as management organization structure, level of technology, buildings and large equipment.

question

Variable Input

answer

Any resource for which the quantity can change during the period of time under consideration
e.g. the company workers

question

Short run

answer

a period of time where there is at least one fixed input

question

Long run

answer

a period of time long enough so that all inputs are variable. Long run decisions are not so easily reversed so a firm must live with the plant size that it has created for some time.

question

Sunk cost

answer

a cost that has already been committed and cannot be recovered

question

Production function

answer

The relationship between maximum amounts of output that a firm can produce and various quantities of inputs

question

Marginal product

answer

the change in total output produced by adding one unit of a variable input, with all other being held constant. E.g. hiring 10 more people means the factory can produce 100 more shirts

question

Law of diminishing returns

answer

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

question

Average product

answer

the average amount produced by each unit of a variable factor of production

question

Relationship between Average and Marginal Product Curves

answer

Marginal Product and Total product eventually intersect each other and that point is maximum average product

question

When is the average product at its maximum?

answer

When marginal product = average product

question

Average product curve

answer

shows the average product that is produced adding a variable input at each unit of the variable input

question

point of diminishing returns

answer

a point at which the level of profits gained is less than the amount of money or energy invested

question

Where would firms likely operate on the average product curve?

answer

Between the point of diminishing returns (the max of MP) and where MP = 0

question

Total Fixed Cost

answer

costs that do not vary as output varies and that must be paid even if output is zero.
e.g. a company leases office space for $10,000 per month

question

Total Variable Cost

answer

Costs that a zero when output is zero and vary as output varies
e.g. packaging costs, labor, raw materials

question

Total costs

answer

the same of total fixed cost and total variable costs at each level of output

question

Average Fixed Costs

answer

total fixed cost divided by the quantity of output produced
AFC = TFC/Q

question

Average Variable Cost

answer

Total variable cost divided by the quantity of output produced
AVC = TVC/Q

question

Average Total Costs

answer

Total cost divided by the quantity of output produced
ATC = TC/Q

question

Marginal Costs

answer

The change in total cost when one additional unit is produced
MC = ΔTC/ΔQ

question

Cost Curves

answer

The cost curves shift with changes in technology or changes in resource prices due to taxes/ government regulation

question

Shifts in Cost Curves

answer

If resource prices fall, cost curves will shift downwards

An increase in technology that allows more output to be produced shifts the cost curve downward

question

Shifting Cost Curves Downward

answer

Higher taxes or more regulation will shift the cost curve upward

question

Shifting Cost Curves Upward

answer

the additional cost of producing an additional unit of output when all inputs, including plant size, can be varied

question

Long Run Marginal Cost Curve

answer

the lowest per unit cost of producing any level of output when the usage of all inputs can be varied

question

Long Run Average Total Cost

answer

1) Economies of scale
2) Diseconomies of scale
3) Constant returns to scale
4) minimum efficient scale

question

Different Scales of Production

answer

a situation in which the long-run average cost of production falls as the firm increases output. The main source of economies of scale is great specialization of both labor and capital.

question

Economies of scale

answer

the situation in which a firm's long-run average costs rise as the firm increases output

question

Diseconomies of scale

answer

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

question

Constant returns to scale

answer

the smallest quantity of output at which the long-run average cost reaches its lowest level

question

Minimum efficient scale

answer

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