Production and Costs Study Materials

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Marginal product equals average product

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at the maximum value of average product.

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The economically efficient input combination for producing a given level of output

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can produce that level of output at the lowest possible total cost.

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If average product is rising, then marginal product

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can be either rising or falling, but it must lie above average product

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Fixed costs

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do not exist in the long run

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When the average product of the variable input is equal to the marginal product,

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1. average variable cost reaches its minimum value.

2. marginal cost is rising.

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If a firm is producing 5 units of output and the marginal cost for the fifth unit is $7 and the average variable cost for the fifth unit is $3, then the average variable cost for the fourth unit is _______.

answer

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If short-run marginal cost is -shaped, then

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1. total variable cost increases at a decreasing rate then increases at an increasing rate.

2. total variable cost must be S-shaped.

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Average total cost

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increases if marginal cost is greater than average total cost.

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Average fixed cost

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decreases as output increases.

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a fixed cost is

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1. cost the firm must pay even if output is zero.

2. a cost that does not vary with the amount of good or service produced.

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T/F? A firm that operates in an economically efficient way is also operating in a technically efficient way.

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true

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T/F? Average fixed cost is not usually graphed with the other average cost curves because average fixed cost can be obtained from average total cost and average variable cost.

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true

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T/f? If average variable cost is rising, marginal cost must be rising.

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true

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T/F? Marginal cost measures the change in total variable cost as output changes.

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true

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T/F? The long run period of production can be thought of as the set of all possible short run situations.

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true

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T/F? Two reasons for input fixity are (1) the costs of adjusting the level of an input is prohibitively high, and (2) a required input can only be purchased in lumpy, indivisible amounts.

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true

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production function

answer

a schedule showing the max amount of output that can be produced from any specific set of inputs

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?? are considered variable or fixed depending on how readily their usage can be changed

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inputs

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an input for which the level of usage may be varied to increase or decrease output

answer

variable input

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input for which the label of usage CANNOT be changed & which must be paid even if no output is produced given existing technology

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fixed input

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current time span during which at least one input is fixed

answer

Short Run (SR)

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· time period far enough in the future to allow all fixed inputs to become variable inputs

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Long Run (LR)

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- Payment for an input that, once made, cannot be recovered should the firm no longer wish to employ that input

- Irrelevant for all future time periods; not part of the economic costs of production in future time periods

- Should be ignored for decision making purposes

- include fixed costs

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sunk costs

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· Input costs the firm can recover or avoid paying should it no longer wish to employ that inputs

· Matter in decision making and should not be ignored

include variable costs

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avoidable costs

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short run production function

answer

Q = f (L, K) = f (L)

1 of 25

question

Marginal product equals average product

answer

at the maximum value of average product.

question

The economically efficient input combination for producing a given level of output

answer

can produce that level of output at the lowest possible total cost.

question

If average product is rising, then marginal product

answer

can be either rising or falling, but it must lie above average product

question

Fixed costs

answer

do not exist in the long run

question

When the average product of the variable input is equal to the marginal product,

answer

1. average variable cost reaches its minimum value.

2. marginal cost is rising.

question

answer

question

If short-run marginal cost is -shaped, then

answer

1. total variable cost increases at a decreasing rate then increases at an increasing rate.

2. total variable cost must be S-shaped.

question

Average total cost

answer

increases if marginal cost is greater than average total cost.

question

Average fixed cost

answer

decreases as output increases.

question

a fixed cost is

answer

1. cost the firm must pay even if output is zero.

2. a cost that does not vary with the amount of good or service produced.

question

T/F? A firm that operates in an economically efficient way is also operating in a technically efficient way.

answer

true

question

T/F? Average fixed cost is not usually graphed with the other average cost curves because average fixed cost can be obtained from average total cost and average variable cost.

answer

true

question

T/f? If average variable cost is rising, marginal cost must be rising.

answer

true

question

T/F? Marginal cost measures the change in total variable cost as output changes.

answer

true

question

T/F? The long run period of production can be thought of as the set of all possible short run situations.

answer

true

question

T/F? Two reasons for input fixity are (1) the costs of adjusting the level of an input is prohibitively high, and (2) a required input can only be purchased in lumpy, indivisible amounts.

answer

true

question

production function

answer

a schedule showing the max amount of output that can be produced from any specific set of inputs

question

?? are considered variable or fixed depending on how readily their usage can be changed

answer

inputs

question

an input for which the level of usage may be varied to increase or decrease output

answer

variable input

question

input for which the label of usage CANNOT be changed & which must be paid even if no output is produced given existing technology

answer

fixed input

question

current time span during which at least one input is fixed

answer

Short Run (SR)

question

· time period far enough in the future to allow all fixed inputs to become variable inputs

answer

Long Run (LR)

question

- Payment for an input that, once made, cannot be recovered should the firm no longer wish to employ that input

- Irrelevant for all future time periods; not part of the economic costs of production in future time periods

- Should be ignored for decision making purposes

- include fixed costs

answer

sunk costs

question

· Input costs the firm can recover or avoid paying should it no longer wish to employ that inputs

· Matter in decision making and should not be ignored

include variable costs

answer

avoidable costs

question

short run production function

answer

Q = f (L, K) = f (L)

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