Managerial Economics and Business Strategy Ch 5

question

variable costs

answer

Costs that change with changes in output; include the costs of inputs that vary with output.

question

short-run cost function

answer

A function that defines the minimum possible cost of producing each output level when variable factors are employed in the cost-minimizing fashion.

question

average fixed cost

answer

Fixed costs divided by the number of units of output.

question

average variable cost

answer

Variable costs divided by the number of units of output.

question

marginal (incremental) cost

answer

The cost of producing an additional unit of output.

question

sunk cost

answer

A cost that is forever lost after it has been paid.

question

cubic cost function

answer

Costs are a cubic function of output; provides a reasonable approximation to virtually any cost function.

question

long-run average cost curve

answer

A curve that defines the minimum average cost of producing alternative levels of output, allowing for optimal selection of both fixed and variable factors of production.

question

economies of scale

answer

Exist when long-run average costs decline as output is increased.

question

diseconomies of scale

answer

Exist when long-run average costs rise as output is increased.

question

constant returns to scale

answer

Exist when long-run average costs remain constant as output is increased.

question

multiproduct cost function

answer

A function that defines the cost of producing given levels of two or more types of outputs assuming all inputs are used efficiently.

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economies of scope

answer

When the total cost of producing two types of outputs together is less than the total cost of producing each type of output separately.

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cost complementarity

answer

When the marginal cost of producing one type of output decreases when the output of another good is increased.

question

fixed costs

answer

Costs that do not change with changes in output; include the costs of fixed inputs used in production.

question

law of diminishing marginal rate of technical substitution

answer

A property of a production function stating that as less of one input is used, increasing amounts of another input must be employed to produce the same level of output.

question

isocost line

answer

A line that represents the combinations of inputs that will cost the producer the same amount of money.

question

isoquant

answer

Defines the combinations of inputs that yield the same level of output.

question

marginal rate of technical substitution (MRTS)

answer

The rate at which a producer can substitute between two inputs and maintain the same level of output. MRTSkL = MPL/MPK

question

Cobb-Douglas production function

answer

A production function that assumes some degree of substitutability among inputs.

question

Leontief production function

answer

A production function that assumes that inputs are used in fixed proportions.

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linear production function

answer

A production function that assumes a perfect linear relationship between all inputs and total output.

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value marginal product

answer

The value of the output produced by the last unit of an input.

question

increasing marginal returns

answer

Range of input usage over which marginal product increases.

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decreasing (diminishing) marginal returns

answer

Range of input usage over which marginal product declines

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negative marginal returns

answer

Range of input usage over which marginal product is negative.

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total product

answer

The maximum level of output that can be produced with a given amount of inputs.

question

average product

answer

A measure of the output produced per unit of input.

question

marginal product

answer

The change in total output attributable to the last unit of an input.

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fixed and variable factors of production

answer

Fixed factors are the inputs the manager cannot adjust in the short run. Variable factors are the inputs a manager can adjust to alter production.

question

production function

answer

A function that defines the maximum amount of output that can be produced with a given set of inputs.

question

average product of labor

answer

Measures the output of an average worker. APL = Q/L

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average product of capital

answer

Measures the output of an average unit of capital. APk = Q/K

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marginal product of labor

answer

Measures the output produced by the last worker. Slope of the short-run production function. MPL = change in Q/ change in L

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marginal product of capital

answer

Measures the output produced by the last unit of capital. When capital is allowed to vary in the short-run, MPk is the slope of the production function (with respect to capital). MPk = change in Q/ change in K

question

linear isoquants

answer

Imply that inputs are substituted at a constant rate, independent of the input levels employed.

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question

variable costs

answer

Costs that change with changes in output; include the costs of inputs that vary with output.

question

short-run cost function

answer

A function that defines the minimum possible cost of producing each output level when variable factors are employed in the cost-minimizing fashion.

question

average fixed cost

answer

Fixed costs divided by the number of units of output.

question

average variable cost

answer

Variable costs divided by the number of units of output.

question

marginal (incremental) cost

answer

The cost of producing an additional unit of output.

question

sunk cost

answer

A cost that is forever lost after it has been paid.

question

cubic cost function

answer

Costs are a cubic function of output; provides a reasonable approximation to virtually any cost function.

question

long-run average cost curve

answer

A curve that defines the minimum average cost of producing alternative levels of output, allowing for optimal selection of both fixed and variable factors of production.

question

economies of scale

answer

Exist when long-run average costs decline as output is increased.

question

diseconomies of scale

answer

Exist when long-run average costs rise as output is increased.

question

constant returns to scale

answer

Exist when long-run average costs remain constant as output is increased.

question

multiproduct cost function

answer

A function that defines the cost of producing given levels of two or more types of outputs assuming all inputs are used efficiently.

question

economies of scope

answer

When the total cost of producing two types of outputs together is less than the total cost of producing each type of output separately.

question

cost complementarity

answer

When the marginal cost of producing one type of output decreases when the output of another good is increased.

question

fixed costs

answer

Costs that do not change with changes in output; include the costs of fixed inputs used in production.

question

law of diminishing marginal rate of technical substitution

answer

A property of a production function stating that as less of one input is used, increasing amounts of another input must be employed to produce the same level of output.

question

isocost line

answer

A line that represents the combinations of inputs that will cost the producer the same amount of money.

question

isoquant

answer

Defines the combinations of inputs that yield the same level of output.

question

marginal rate of technical substitution (MRTS)

answer

The rate at which a producer can substitute between two inputs and maintain the same level of output. MRTSkL = MPL/MPK

question

Cobb-Douglas production function

answer

A production function that assumes some degree of substitutability among inputs.

question

Leontief production function

answer

A production function that assumes that inputs are used in fixed proportions.

question

linear production function

answer

A production function that assumes a perfect linear relationship between all inputs and total output.

question

value marginal product

answer

The value of the output produced by the last unit of an input.

question

increasing marginal returns

answer

Range of input usage over which marginal product increases.

question

decreasing (diminishing) marginal returns

answer

Range of input usage over which marginal product declines

question

negative marginal returns

answer

Range of input usage over which marginal product is negative.

question

total product

answer

The maximum level of output that can be produced with a given amount of inputs.

question

average product

answer

A measure of the output produced per unit of input.

question

marginal product

answer

The change in total output attributable to the last unit of an input.

question

fixed and variable factors of production

answer

Fixed factors are the inputs the manager cannot adjust in the short run. Variable factors are the inputs a manager can adjust to alter production.

question

production function

answer

A function that defines the maximum amount of output that can be produced with a given set of inputs.

question

average product of labor

answer

Measures the output of an average worker. APL = Q/L

question

average product of capital

answer

Measures the output of an average unit of capital. APk = Q/K

question

marginal product of labor

answer

Measures the output produced by the last worker. Slope of the short-run production function. MPL = change in Q/ change in L

question

marginal product of capital

answer

question

linear isoquants

answer

Imply that inputs are substituted at a constant rate, independent of the input levels employed.

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