question
Law of Diminishing Marginal Returns
answer
As more of a variable resource is added to a given amount of a fixed resource, marginal product eventually declines and could become negative
· Short Run Scenario
· Resources are of equal quality
· Technology is fixed
· Variable resources are adding to fixed resources
· Short Run Scenario
· Resources are of equal quality
· Technology is fixed
· Variable resources are adding to fixed resources
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Fixed cost
answer
Costs that do not vary with output (quantity produce) Ex: Rent. Does not changed
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Variable Cost
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Costs that do vary with output (quantity produced) Ex: materials or utility bills. Rises and falls
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Marginal Cost
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· Reflects the additional cost associated with producing one more unit of output
· MC= Change in TC/ Change in Quantity- the cost of producing one more unit of a good
· MC= Change in TC/ Change in Quantity- the cost of producing one more unit of a good
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AFC equation
answer
TFC/ Quantity
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AVC equation
answer
TVC/Quantity
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ATC equation
answer
AFC+AVC
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Economies of scale
answer
-Labor specialization
-Managerial specialization
-Efficient capital
-Other factors
-Managerial specialization
-Efficient capital
-Other factors
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Constant returns to scale
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Occurs when ATC is constant over variety of plant sizes
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Diseconomies of scale
answer
· Control of coordination problems
· Communication problems
· Worker alienation
· Shirking- looking like you're working when you aren't
· Communication problems
· Worker alienation
· Shirking- looking like you're working when you aren't
question
Accounting profit
answer
total revenue minus total explicit cost
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Economic Profit
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total revenue minus total cost, including both explicit and implicit costs. A return in excess of what is necessary to retain the services of the entrepreneur
Minimum amount (Still considered enough to stay in business)
Minimum amount (Still considered enough to stay in business)
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Normal Profit
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The minimum level of economic profit a company needs to stay in business
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Profit Maximizing Rule
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MR=MC
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Shutdown Rule
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in the short run, the firm should continue to produce if total revenue exceeds total variable costs; otherwise, it should shut down
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Perfect Competition Characteristics
answer
-Very large numbers of sellers
-Standardized product
-"Price takers"- market sets the price, forced to sell at that price
-Easy entry and exit
-Perfectly elastic demand
-Standardized product
-"Price takers"- market sets the price, forced to sell at that price
-Easy entry and exit
-Perfectly elastic demand
question
What is the difference between the short-run and long-run for firms?
answer
In the short run, costs can be fixed and in the long run all costs and resources are variable.
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What is the marginal product of the 2nd worker hired? Which worker does the law of diminishing returns set in for this firm?
answer
...
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How to determine marginal product and law of diminishing returns
answer
the difference of number between the workers
1=5
2=6
3=8
4=6 ---- here is when the LoDR sets in because the MP went down
1=5
2=6
3=8
4=6 ---- here is when the LoDR sets in because the MP went down
question
What is the average fixed cost of producing 4 units of output for this firm?
answer
...
question
What is the total cost of producing 4 units of output for this firm?
answer
atc times quantity
question
Draw a correctly labeled graph for Alphabet Farms cost curves.
-Label it's AFC, AVC, ATC and MC.
-Label it's AFC, AVC, ATC and MC.
answer
...
question
When you start from zero to Q1, why do the long-run average total costs initially continue to decrease over time?
answer
-Labor specialization
-Managerial specialization
-Efficient capital
-Efficient Working
-Buy in bulk
-Other factors
-Managerial specialization
-Efficient capital
-Efficient Working
-Buy in bulk
-Other factors
question
A) What price is the firm making positive economic profit?
B) What price are they making zero economic profit?
C) What price are they loss-minimizing?
B) What price are they making zero economic profit?
C) What price are they loss-minimizing?
answer
...
question
zero economic profit
answer
MRDARP intersects with ATC and MC, still making accounting profit just not economic
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positive economic profit
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making accounting and economic profit
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marginal product
answer
number of things between product
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...
answer
...
question
...
answer
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