Econ Chpt 22 - Assignment Essays

question

Production Function

answer

the way a firm combines inputs to produce an output.

question

Types of inputs

answer

Variable inputs - inputs that can be changes in the short-run to change production (Labor)

Fixed Inputs - inputs that cannot be changed in the short-run to change production (rent)

question

cookie example

answer

Variable Inputs: Butter, eggs, chocolate chips, sugar, flour, brown sugar, vanilla, vanilla, baking soda, labor
Fixed Inputs: measuring cups and spoons, bowls and spatulas, oven, cookie sheets, cooling racks

question

short run

answer

Period of time too short for firms to alter fixed inputs

question

plants capacity

answer

a firm's maximum potential level of production.

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Total production (TP)

answer

the total quantity, or total output, of a particular good produced.

question

Marginal product (MP)

answer

the extra output or added product associated with adding a unit of a variable resource (EX. cooks. More cooks, more meals until a certain point (LDR).
MP(L) = change in TP / change in Labor

question

Average product (AP)

answer

the average quantity of output produced by one unit of a variable input, often labor. also called labor productivity, is output per unit of labor input. Here productivity of the cooks is measured. Will be more productive with more cooks, until a certain point.
AP(L) = TP/Labor

question

MP crosses through the maximum of AP:

answer

When MP is above AP, AP is rising.When MP is below AP, AP is falling.

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, such as capital, will cause the marginal product of the variable input to decline
-does not exist in the long run
- in LR all resources are variable

question

fixed cost

answer

costs that in total do not vary with changes in output. In other words, no matter how profitable or not profitable a business is, it must pay this cost that will not change. EX. Rent.

question

variable cost

answer

costs that change with the level of output. EX. Wages.

question

total cost

answer

the sum of fixed cost and variable cost at each level of output.

question

Average fixed cost (AFC)

answer

Total fixed costs (TFC)/output (Q)
Average fixed costs decline as output increases

question

average variable cost (AVC)

answer

Total variable costs (TVC)/output (Q)
Graphically reflects law of diminishing returns. Initially decreases until the rise in output isn't marginally productive.

question

Average Total Cost (ATC)

answer

AFC + AVC = TC/Q = TFC/Q + TVC/Q
Graphically this can be found by adding the AFC and AVC curves.

question

Marginal Cost

answer

the extra or additional cost of producing one more unit of output.
MC = Change in TC/Change in Q

question

Economies of Scale

answer

The downsloping part of the ATC curve. For a time, the more plant sizes, the lower the ATC. This is due to the following:
1. Labor Specialization
2. Managerial Specialization
3. Efficient Capital
4. Other Factors

question

labor specialization

answer

Increasing specialization is more achievable as a plant increases in size. Having workers do fewer, more specialized tasks, allows them to be more efficient.

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Managerial Specialization:

answer

Management can now also specialize and be more efficient.

question

Efficient Capital:

answer

Small firms often cannot afford the more efficient equipment. Large-scale producers can afford more expensive and efficient equipment.

question

other factors

answer

As a firm expands, start-up costs decrease, advertisement costs decrease per-unit, the firm also learns by doing, becoming more efficient

question

Diseconomies of Scale

answer

The difficulty of controlling and coordinating a firm's operations as it becomes a large-scale producer.

This will cause the firm to be less efficient, and cause the long-run ATC curve to increase.

question

Constant returns to scale:

answer

Here a firm's average cost does not change.

question

Minimum Efficient Scale (MES)

answer

The lowest level of output at which a firm can minimize long-run average costs. This occurs at constant returns to scale.

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sunk cost

answer

Spent costs that cannot be recovered.

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explicit cost

answer

monetary payments to those who supply labor services. These payments are for the use of resources owned by others. These are all things you would see on a balance sheet. For example, paying for equipment, rent, wages, etc.

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implicit cost

answer

the opportunity costs of using self-owned resources. The money you could have made using the next best option for these resources. These are hidden costs, such as the opportunity cost of what your salary at the next best job. ex. giving workers a day off will lead to a drop of sales and income

question

economic profit

answer

=total revenue - economic cost

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normal profit

answer

When Economic Profit = 0, it is a normal profit. This profit takes into account the implicit and explicit costs.

question

Accountant profit

answer

=total revenue - explicit costs
Again, explicit costs are all things you would see on a balance sheet. Such as paying for equipment, rent, and wages. This type of profit you are used to seeing.

1 of 31

question

Production Function

answer

the way a firm combines inputs to produce an output.

question

Types of inputs

answer

Variable inputs - inputs that can be changes in the short-run to change production (Labor)

Fixed Inputs - inputs that cannot be changed in the short-run to change production (rent)

question

cookie example

answer

question

short run

answer

Period of time too short for firms to alter fixed inputs

question

plants capacity

answer

a firm's maximum potential level of production.

question

Total production (TP)

answer

the total quantity, or total output, of a particular good produced.

question

Marginal product (MP)

answer

the extra output or added product associated with adding a unit of a variable resource (EX. cooks. More cooks, more meals until a certain point (LDR).
MP(L) = change in TP / change in Labor

question

Average product (AP)

answer

question

MP crosses through the maximum of AP:

answer

When MP is above AP, AP is rising.When MP is below AP, AP is falling.

question

law of diminishing returns

answer

question

fixed cost

answer

costs that in total do not vary with changes in output. In other words, no matter how profitable or not profitable a business is, it must pay this cost that will not change. EX. Rent.

question

variable cost

answer

costs that change with the level of output. EX. Wages.

question

total cost

answer

the sum of fixed cost and variable cost at each level of output.

question

Average fixed cost (AFC)

answer

Total fixed costs (TFC)/output (Q)
Average fixed costs decline as output increases

question

average variable cost (AVC)

answer

Total variable costs (TVC)/output (Q)
Graphically reflects law of diminishing returns. Initially decreases until the rise in output isn't marginally productive.

question

Average Total Cost (ATC)

answer

AFC + AVC = TC/Q = TFC/Q + TVC/Q
Graphically this can be found by adding the AFC and AVC curves.

question

Marginal Cost

answer

the extra or additional cost of producing one more unit of output.
MC = Change in TC/Change in Q

question

Economies of Scale

answer

question

labor specialization

answer

Increasing specialization is more achievable as a plant increases in size. Having workers do fewer, more specialized tasks, allows them to be more efficient.

question

Managerial Specialization:

answer

Management can now also specialize and be more efficient.

question

Efficient Capital:

answer

Small firms often cannot afford the more efficient equipment. Large-scale producers can afford more expensive and efficient equipment.

question

other factors

answer

As a firm expands, start-up costs decrease, advertisement costs decrease per-unit, the firm also learns by doing, becoming more efficient

question

Diseconomies of Scale

answer

The difficulty of controlling and coordinating a firm's operations as it becomes a large-scale producer.

This will cause the firm to be less efficient, and cause the long-run ATC curve to increase.

question

Constant returns to scale:

answer

Here a firm's average cost does not change.

question

Minimum Efficient Scale (MES)

answer

The lowest level of output at which a firm can minimize long-run average costs. This occurs at constant returns to scale.

question

sunk cost

answer

Spent costs that cannot be recovered.

question

explicit cost

answer

question

implicit cost

answer

question

economic profit

answer

=total revenue - economic cost

question

normal profit

answer

When Economic Profit = 0, it is a normal profit. This profit takes into account the implicit and explicit costs.

question

Accountant profit

answer

=total revenue - explicit costs
Again, explicit costs are all things you would see on a balance sheet. Such as paying for equipment, rent, and wages. This type of profit you are used to seeing.

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