ECON 2101 Midterm #2 - Assignment Essays

question

Inputs

answer

Resources, such as labor, capital equipment, and raw materials, that are combined to produce finished goods

question

Factors of production

answer

resources that are used to produce a good

question

Output

answer

the amount of a good or service produced by a firm

question

production function

answer

a mathematical representation that shows the maximum quantity of output a firm can produce given the quantities of inputs that it might employ

question

production set

answer

the set of technically feasible combinations of inputs and outputs

question

technically inefficient

answer

the set of points in the production set at which the firm is getting less output from its labor than it could

question

technically efficient

answer

the set of points in the production set at which the firm is producing as much output as it possibly can given the amount of labor it employs

question

labor requirements function

answer

A function that indicates the minimum amount of labor required to produce a given amount of output.

question

total production function

answer

a production function. A total product function with a single input shows how total output depends on the level of the input

question

increasing marginal returns to labor

answer

the region along the total product function where output rises with additional labor at an increasing rate

question

Diminishing marginal returns to labor

answer

the region along the total product function in which output rises with additional labor but at a decreasing rate

question

diminishing total returns to labor

answer

the region along the total product function where output decreases with additional labor

question

average product of labor

answer

the average amount of output per unit of labor

question

marginal product of labor

answer

the rate at which total output changes as the quantity of labor the firm uses is changed

question

law of diminishing marginal returns

answer

principle that as the use of an input increases with other inputs fixed, the resulting additions to output will eventually decrease

question

total product hill

answer

a three-dimensional graph of a production function

question

isoquant

answer

a curve that shows all the combinations of two inputs, such as capital and labor, that will produce the same level of output

question

uneconomic region of production

answer

The region of upward-sloping or backward-bending isoquants. In the uneconomic region, at least one input has a negative marginal product.

question

economic region of production

answer

the region where the isoquants are downward sloping

question

marginal rate of technical substitution of labor for capital

answer

the rate at which the quantity of capital can be reduced for every one-unit increase in the quantity of labor, holding the quantity of output constant

question

diminishing marginal rate of technical substitution

answer

a feature of a production function in which the marginal rate of technical substitution of labor diminishes as the quantity of labor increases along an isoquant

question

elasticity of substitution

answer

A measure of how easy it is for a firm to substitute labor for capital. It is equal to the percentage change in the capital-labor ratio for every 1 percent change in the marginal rate of technical substitution of labor for capital as we move along an isoquant.

question

capital-labor ratio

answer

The ratio of the quantity of capital to the quantity of labor.

question

linear production function

answer

A production function of the form Q =

aL + bK, where a and b are positive constants.

question

perfect substitutes

answer

(in production) inputs in a production function with a constant marginal rate of technical substitution

question

Fixed-Proportions Production Function

answer

a production function in which the inputs must be used in a fixed ratio to one another

question

perfect complements

answer

(in production) inputs in a fixed-proportions production function

question

Cobb-Douglas production function

answer

a production function of the form Q = AL^aK^b, where Q is the quantity of output from L units of labor and k units of capital and where A, a, and b are positive constants

question

constant elasticity of substitution (CES) production function

answer

a type of production function that includes linear production functions, fixed-proportions production functions, and Cobb-Douglas production functions as special cases

question

returns to scale

answer

The concept that tells us the percentage by which output will increase when all inputs are increased by a given percentage.

question

increasing returns to scale

answer

a proportionate increase in all input quantities resulting in a greater than proportionate increase in output

question

constant returns to scale

answer

a proportionate increase in all input quantities simultaneously that results in the same percentage increase in output

question

decreasing returns to scale

answer

a proportionate increase in all input quantities resulting in a less than proportionate increase in output

question

technological process

answer

a change in a production process that enables a firm to achieve more output from a given combination of inputs or, equivalently, the same amount of output from less inputs

question

neutral technological process

answer

technological progress that decreases the amounts of labor and capital needed to produce a given output, without affecting the marginal rate of technical substitution of labor for capital

question

labor-saving technological progress

answer

technological progress that causes the marginal product of capital to increase relative to the marginal product of labor

question

capital-saving technological progress

answer

technological progress that causes the marginal product of labor to increase relative to the marginal product of capital

question

explicit costs

answer

costs that involve a direct monetary outlay

question

implicit costs

answer

costs that do not involve outlays of cash

question

opportunity cost

answer

the value of the next best alternative that is forgone when another alternative is chosen

question

economic costs

answer

the sum of the firms explicit costs and implicit costs

question

accounting costs

answer

The total of explicit costs that have been incurred in the past

question

sunk costs

answer

costs that have already been incurred and cannot be recovered

question

nonsunk costs

answer

costs that are incurred only if a particular decision is made

question

total variable cost

answer

the sum of expenditures on variable inputs, such as labor and materials, at the short-run cost-minimizing input combination

question

total fixed cost

answer

the cost of fixed inputs; it does not vary with output

question

cost-minimization problem

answer

the problem of finding the input combination that minimizes a firm's total cost of producing a particular level of output

question

cost-minimization firm

answer

a firm that seeks to minimize the cost of producing a given amount of output

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

short run

answer

the period of time in which at least one of the firm's input quantities cannot be changed

question

isocost line

answer

the set of combinations of labor and capital that yield the same total cost for the firm

question

expansion path

answer

a line that connects the cost-minimizing input combinations as the quantity of output, Q, varies, holding input prices constant

question

normal input

answer

an input whose cost-minimizing quantity increases as the firm produces more output

question

inferior input

answer

an input whose cost-minimizing quantity decreases as the firm produces more output

question

labor demand curve

answer

A curve that shows how the firm's cost-minimizing quantity of labor varies with the price of labor.

question

price elasticity of demand for labor

answer

The percentage change in the cost-minimizing quantity of labor with respect to a 1 percent change in the price of labor.

question

price elasticity of demand for capital

answer

the percentage change in the cost-minimizing quantity of capital with respect to a 1 percent change in the price of capital

question

long run total cost curve

answer

a curve that shows how total cost varies with output, holding input prices fixed and choosing all inputs to minimize cost

question

long run average cost

answer

The firm's total cost per unit of output. It equals long-run total cost divided by total quantity

question

Long-run marginal cost

answer

the rate at which long-run total cost changes with respect to change in output

question

indivisible input

answer

an input that is available only in a certain minimum size; its quantity cannot be scaled down as the firm's output goes to zero

question

marginal diseconomies

answer

a situation in which a given percentage increase in output forces the firm to increase its spending on the services of managers by more than this percentage

question

minimum efficient scale

answer

the smallest output at which long-run average cost curve attains its minimum point

question

Output Elasticity of Total Cost

answer

the percentage change in total cost per 1 percent change in output

question

short run total cost curve

answer

a curve that shows the minimized total cost of producing a given quantity of output when at least one input is fixed

question

total variable cost curve

answer

a curve that shows the sum of expenditures on variable inputs, such as labor and materials, at the short-run cost-minimizing input combination

question

total fixed cost curve

answer

a curve that shows the cost of fixed inputs and does not vary with output

question

short run average cost

answer

the firm's total cost per unit of output when it has one or more fixed inputs

question

short run marginal cost

answer

the slope of the short-run total cost curve

question

average variable cost

answer

total variable cost per unit of output

question

average fixed cost

answer

total fixed cost per unit of output

question

economies of scope

answer

a production characteristic in which the total cost of producing given quantities of two goods in the same firm is less than the total cost of producing those quantities in two single product firms

question

stand-alone cost

answer

The cost of producing a good in a single-product firm.

question

economies of experience

answer

Cost advantages that result from accumulated experience, or as it is sometimes called, learning-by-doing.

question

experience curve

answer

A relationship between average variable cost and cumulative production volume. It is used to describe the economies of experience.

question

experience elasticity

answer

The percentage change in average variable cost for every 1 percent increase in cumulative volume.

question

slope of the experience curve

answer

How much average variable costs go down, as a percentage of an initial level, when cumulative output doubles.

question

total cost function

answer

a mathematical relationship that shows how total costs vary with the factors that influence total costs, including the quantity of output and the prices of inputs

question

cost driver

answer

a factor that influences or "drives" total or average costs

question

constant elasticity cost function

answer

A cost function that specifies constant elasticities of total cost with respect to output and input prices.

question

translog cost function

answer

A cost function that postulates a quadratic relationship between the log of total cost and the logs of input prices and output.

1 of 81

question

Inputs

answer

Resources, such as labor, capital equipment, and raw materials, that are combined to produce finished goods

question

Factors of production

answer

resources that are used to produce a good

question

Output

answer

the amount of a good or service produced by a firm

question

production function

answer

a mathematical representation that shows the maximum quantity of output a firm can produce given the quantities of inputs that it might employ

question

production set

answer

the set of technically feasible combinations of inputs and outputs

question

technically inefficient

answer

the set of points in the production set at which the firm is getting less output from its labor than it could

question

technically efficient

answer

the set of points in the production set at which the firm is producing as much output as it possibly can given the amount of labor it employs

question

labor requirements function

answer

A function that indicates the minimum amount of labor required to produce a given amount of output.

question

total production function

answer

a production function. A total product function with a single input shows how total output depends on the level of the input

question

increasing marginal returns to labor

answer

the region along the total product function where output rises with additional labor at an increasing rate

question

Diminishing marginal returns to labor

answer

the region along the total product function in which output rises with additional labor but at a decreasing rate

question

diminishing total returns to labor

answer

the region along the total product function where output decreases with additional labor

question

average product of labor

answer

the average amount of output per unit of labor

question

marginal product of labor

answer

the rate at which total output changes as the quantity of labor the firm uses is changed

question

law of diminishing marginal returns

answer

principle that as the use of an input increases with other inputs fixed, the resulting additions to output will eventually decrease

question

total product hill

answer

a three-dimensional graph of a production function

question

isoquant

answer

a curve that shows all the combinations of two inputs, such as capital and labor, that will produce the same level of output

question

uneconomic region of production

answer

The region of upward-sloping or backward-bending isoquants. In the uneconomic region, at least one input has a negative marginal product.

question

economic region of production

answer

the region where the isoquants are downward sloping

question

marginal rate of technical substitution of labor for capital

answer

the rate at which the quantity of capital can be reduced for every one-unit increase in the quantity of labor, holding the quantity of output constant

question

diminishing marginal rate of technical substitution

answer

a feature of a production function in which the marginal rate of technical substitution of labor diminishes as the quantity of labor increases along an isoquant

question

elasticity of substitution

answer

question

capital-labor ratio

answer

The ratio of the quantity of capital to the quantity of labor.

question

linear production function

answer

A production function of the form Q =

aL + bK, where a and b are positive constants.

question

perfect substitutes

answer

(in production) inputs in a production function with a constant marginal rate of technical substitution

question

Fixed-Proportions Production Function

answer

a production function in which the inputs must be used in a fixed ratio to one another

question

perfect complements

answer

(in production) inputs in a fixed-proportions production function

question

Cobb-Douglas production function

answer

a production function of the form Q = AL^aK^b, where Q is the quantity of output from L units of labor and k units of capital and where A, a, and b are positive constants

question

constant elasticity of substitution (CES) production function

answer

a type of production function that includes linear production functions, fixed-proportions production functions, and Cobb-Douglas production functions as special cases

question

returns to scale

answer

The concept that tells us the percentage by which output will increase when all inputs are increased by a given percentage.

question

increasing returns to scale

answer

a proportionate increase in all input quantities resulting in a greater than proportionate increase in output

question

constant returns to scale

answer

a proportionate increase in all input quantities simultaneously that results in the same percentage increase in output

question

decreasing returns to scale

answer

a proportionate increase in all input quantities resulting in a less than proportionate increase in output

question

technological process

answer

a change in a production process that enables a firm to achieve more output from a given combination of inputs or, equivalently, the same amount of output from less inputs

question

neutral technological process

answer

technological progress that decreases the amounts of labor and capital needed to produce a given output, without affecting the marginal rate of technical substitution of labor for capital

question

labor-saving technological progress

answer

technological progress that causes the marginal product of capital to increase relative to the marginal product of labor

question

capital-saving technological progress

answer

technological progress that causes the marginal product of labor to increase relative to the marginal product of capital

question

explicit costs

answer

costs that involve a direct monetary outlay

question

implicit costs

answer

costs that do not involve outlays of cash

question

opportunity cost

answer

the value of the next best alternative that is forgone when another alternative is chosen

question

economic costs

answer

the sum of the firms explicit costs and implicit costs

question

accounting costs

answer

The total of explicit costs that have been incurred in the past

question

sunk costs

answer

costs that have already been incurred and cannot be recovered

question

nonsunk costs

answer

costs that are incurred only if a particular decision is made

question

total variable cost

answer

the sum of expenditures on variable inputs, such as labor and materials, at the short-run cost-minimizing input combination

question

total fixed cost

answer

the cost of fixed inputs; it does not vary with output

question

cost-minimization problem

answer

the problem of finding the input combination that minimizes a firm's total cost of producing a particular level of output

question

cost-minimization firm

answer

a firm that seeks to minimize the cost of producing a given amount of output

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

short run

answer

the period of time in which at least one of the firm's input quantities cannot be changed

question

isocost line

answer

the set of combinations of labor and capital that yield the same total cost for the firm

question

expansion path

answer

a line that connects the cost-minimizing input combinations as the quantity of output, Q, varies, holding input prices constant

question

normal input

answer

an input whose cost-minimizing quantity increases as the firm produces more output

question

inferior input

answer

an input whose cost-minimizing quantity decreases as the firm produces more output

question

labor demand curve

answer

A curve that shows how the firm's cost-minimizing quantity of labor varies with the price of labor.

question

price elasticity of demand for labor

answer

The percentage change in the cost-minimizing quantity of labor with respect to a 1 percent change in the price of labor.

question

price elasticity of demand for capital

answer

the percentage change in the cost-minimizing quantity of capital with respect to a 1 percent change in the price of capital

question

long run total cost curve

answer

a curve that shows how total cost varies with output, holding input prices fixed and choosing all inputs to minimize cost

question

long run average cost

answer

The firm's total cost per unit of output. It equals long-run total cost divided by total quantity

question

Long-run marginal cost

answer

the rate at which long-run total cost changes with respect to change in output

question

indivisible input

answer

an input that is available only in a certain minimum size; its quantity cannot be scaled down as the firm's output goes to zero

question

marginal diseconomies

answer

a situation in which a given percentage increase in output forces the firm to increase its spending on the services of managers by more than this percentage

question

minimum efficient scale

answer

the smallest output at which long-run average cost curve attains its minimum point

question

Output Elasticity of Total Cost

answer

the percentage change in total cost per 1 percent change in output

question

short run total cost curve

answer

a curve that shows the minimized total cost of producing a given quantity of output when at least one input is fixed

question

total variable cost curve

answer

a curve that shows the sum of expenditures on variable inputs, such as labor and materials, at the short-run cost-minimizing input combination

question

total fixed cost curve

answer

a curve that shows the cost of fixed inputs and does not vary with output

question

short run average cost

answer

the firm's total cost per unit of output when it has one or more fixed inputs

question

short run marginal cost

answer

the slope of the short-run total cost curve

question

average variable cost

answer

total variable cost per unit of output

question

average fixed cost

answer

total fixed cost per unit of output

question

economies of scope

answer

a production characteristic in which the total cost of producing given quantities of two goods in the same firm is less than the total cost of producing those quantities in two single product firms

question

stand-alone cost

answer

The cost of producing a good in a single-product firm.

question

economies of experience

answer

Cost advantages that result from accumulated experience, or as it is sometimes called, learning-by-doing.

question

experience curve

answer

A relationship between average variable cost and cumulative production volume. It is used to describe the economies of experience.

question

experience elasticity

answer

The percentage change in average variable cost for every 1 percent increase in cumulative volume.

question

slope of the experience curve

answer

How much average variable costs go down, as a percentage of an initial level, when cumulative output doubles.

question

total cost function

answer

a mathematical relationship that shows how total costs vary with the factors that influence total costs, including the quantity of output and the prices of inputs

question

cost driver

answer

a factor that influences or "drives" total or average costs

question

constant elasticity cost function

answer

A cost function that specifies constant elasticities of total cost with respect to output and input prices.

question

translog cost function

answer

A cost function that postulates a quadratic relationship between the log of total cost and the logs of input prices and output.

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