Econ Topic 12: The cost of production

question

What are the basic activity of a firm?

answer

-Labor(L)
-Capital(K)
-Natural resources(N)
-The produce outputs(Q)

question

Technology

answer

the processes a firm uses to turn inputs into outputs of goods and services

question

production function

answer

Is the relationship between the inputs employed by a firm and the Maximum output(Q)

question

Produce Outputs formula:

answer

Q=F(L,K)

question

What are the two time frames that firms use?

answer

-Short run
-Long run

question

Short run

answer

Is a time frame in which the quantity of at leas one of a firm's used in production is fixed.

question

Long run

answer

The long run is a time frame in which the quantities of all inputs can be varied.

question

Total product

answer

Is the total output produced in a given period.

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Marginal product

answer

Is the increase in output that arises from an additional unit of labor employed, with all other inputs remaining the same.

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Average product

answer

is equal to total product divided by the quantity of labor employed.

question

When does the firm experience Increasing marginal returns?

answer

From increased Specialization and division of labor.

question

When does the firm experience Diminishing marginal returns?

answer

Because each additional worker has less access to capital and less space to work.

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Three Costs concepts:

answer

-Total cost
-Marginal cost
-Average cost

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Fixed Cost (FC)

answer

Is the cost of the firm's inputs. Remains constant as output changes.

question

Variable Cost (VC)

answer

is the cost of the firm's variable input. Changes as output changes.

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Total Cost (TC)

answer

Is the cost of all inputs a firm uses in production.

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Total cost formula:

answer

TC = TFC + TVC

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Marginal cost

answer

is the increase in total cost that results from a one-unit increase in total product.

question

Marginal cost formula:

answer

MC = change in TC / change in Q

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Average fixed cost (AFC)

answer

is total fixed cost per unit of output

question

Average variable cost (AVC)

answer

is total variable cost per unit of output

question

Average total cost (ATC)

answer

is total cost per unit of output.

question

Average total cost (ATC) Formula:

answer

ATC = AFC + AVC

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long-run average cost (LRAC)

answer

shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed.

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Economies of scale

answer

features of a firm's technology that lead to falling long-run average cost as output increases.

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Diseconomies of scale

answer

features of a firm's technology that lead to rising long-run average cost as output increases.

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Constant returns to scale

answer

features of a firm's technology that lead to constant long-run average cost as output increases.

question

Minimum efficient scale

answer

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

1 of 28

question

What are the basic activity of a firm?

answer

-Labor(L)
-Capital(K)
-Natural resources(N)
-The produce outputs(Q)

question

Technology

answer

the processes a firm uses to turn inputs into outputs of goods and services

question

production function

answer

Is the relationship between the inputs employed by a firm and the Maximum output(Q)

question

Produce Outputs formula:

answer

Q=F(L,K)

question

What are the two time frames that firms use?

answer

-Short run
-Long run

question

Short run

answer

Is a time frame in which the quantity of at leas one of a firm's used in production is fixed.

question

Long run

answer

The long run is a time frame in which the quantities of all inputs can be varied.

question

Total product

answer

Is the total output produced in a given period.

question

Marginal product

answer

Is the increase in output that arises from an additional unit of labor employed, with all other inputs remaining the same.

question

Average product

answer

is equal to total product divided by the quantity of labor employed.

question

When does the firm experience Increasing marginal returns?

answer

From increased Specialization and division of labor.

question

When does the firm experience Diminishing marginal returns?

answer

Because each additional worker has less access to capital and less space to work.

question

Three Costs concepts:

answer

-Total cost
-Marginal cost
-Average cost

question

Fixed Cost (FC)

answer

Is the cost of the firm's inputs. Remains constant as output changes.

question

Variable Cost (VC)

answer

is the cost of the firm's variable input. Changes as output changes.

question

Total Cost (TC)

answer

Is the cost of all inputs a firm uses in production.

question

Total cost formula:

answer

TC = TFC + TVC

question

Marginal cost

answer

is the increase in total cost that results from a one-unit increase in total product.

question

Marginal cost formula:

answer

MC = change in TC / change in Q

question

Average fixed cost (AFC)

answer

is total fixed cost per unit of output

question

Average variable cost (AVC)

answer

is total variable cost per unit of output

question

Average total cost (ATC)

answer

is total cost per unit of output.

question

Average total cost (ATC) Formula:

answer

ATC = AFC + AVC

question

long-run average cost (LRAC)

answer

shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed.

question

Economies of scale

answer

features of a firm's technology that lead to falling long-run average cost as output increases.

question

Diseconomies of scale

answer

features of a firm's technology that lead to rising long-run average cost as output increases.

question

Constant returns to scale

answer

features of a firm's technology that lead to constant long-run average cost as output increases.

question

Minimum efficient scale

answer

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

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