Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
Econ 201 chapter 8
Business Costs and Production
| Question | Answer | |
|---|---|---|
| The amount a firm receives from the sale of goods and services. | Total revenue (TR) | |
| The amount a firm spends in order to produce and sell those goods and services. • Is the cost of all the inputs a firm uses in production | Total cost (TC) Total cost = fixed cost + variable cost | |
| What does Total Cost equal? | Total cost = fixed cost + variable cost | |
| What does Profit (or loss) equal? . | Profit (or loss) = TR– TC. | |
| • Tangible, out-of-pocket expenses. A cost that involves spending money | Explicit costs | Wages, food costs, utilities. |
| Some resources are not explicitly paid for, but there is an opportunity cost for using those resources A nonmonetary opportunity cost | Implicit costs | |
| What are examples of explicit costs? | Wages, food costs, utilities, The electricity bill, Advertising in the local newspaper, Employee wages | |
| What are examples of implicit costs? | • Opportunity costs of doing business. • Opportunity cost of capital. • Opportunity cost of the owner’s time. The labor of owner but does not draw a salary The use of the owner’s car or computer (personal equipment) to conduct company business | |
| What does accounting profit equal? | Accounting profit = revenues – explicit costs. | |
| What does economic profit equal? | Economic profit = revenues – (explicit + implicit costs). Economic profit = accounting profit – implicit costs. | |
| Which of the following is an example of an implicit cost? A. Wages paid to employees. B. Cost of food delivery. C. The opportunity cost of the owner’s time. D. Monthly insurance premiums. | C. The opportunity cost of the owner’s time. | |
| The product that the firm creates | Output | |
| Resources used in the production process: land, labor, capital. | Factors of production (inputs) | |
| The change in output associated with one additional unit of an input. | Marginal product | |
| Each worker adds more to total output than the one before him or her At some point, workers will have less capital to work with, so output increases, but at a slower rate | Marginal Product of Labor (MPL) | |
| Each worker adds more to total output than the one before him or her → | MPL is increasing | |
| At some point, workers will have less capital to work with, so output increases, but at a slower rate → | MPL is decreasing | |
| Occurs when successive increases in inputs are associated with a slower rise in output | Diminishing marginal product This happens since as you add more workers, extra workers have less to do and even interfere with productivity. (Hawthorne's) | |
| Total output with seven workers is Q = 70. Total output with eight workers is Q = 82. What is the marginal product of the eighth worker? A. 12 B. 10 C. 82 D. 8 | A. 12 | |
| At what output does diminishing marginal product begin? A. 8 B. 10 C. 11 D. 9 Workers : 0 - 1 - 2 -3 - 4 - 5 - 6 product: 0 - 3 - 8 - 10 - 11 - 9 - 6 | B. 10 | |
| Period of production in which at least one input is fixed. | Short Run Example: A firm might have a long-term lease on a factory that is too costly to get out of | |
| Period of production in which all inputs are variable | Long Run Think of it as “a long enough period of time that anything can be changed.” | |
| Costs that change with the rate of output. | Variable costs (VC) VC increases as output increases | |
| • Costs that do not vary with output | Fixed costs (FC) • FC does not change when output changes. • Fixed costs must be paid, even if Q = 0. | |
| The sum of variable and fixed costs. | Total cost (TC) TC = TVC + TFC | |
| Total cost divided by the number of units produced. | Average total cost (ATC) • ATC = TC ÷ Q | |
| Total variable cost divided by the number of units produced | Average variable cost (AVC) AVC = TVC ÷ Q | |
| Total fixed cost divided by the number of units produced | Average fixed cost (AFC) AFC = TFC ÷ Q | |
| Increase in cost from producing one more unit of output. Change in total cost divided by change in output. | Marginal cost (MC) MC = ΔTC ÷ ΔQ | |
| INFORMATION MC curve: • MC curve is a “mirror” of the MP curve: • When the MPL is increasing/decreasing →MC is decreasing/ increasing | ||
| INFORMATION MCs fall due to the gains from increased specialization, and when the advantages of continued specialization are overtaken by diminishing marginal product, MCs begin to rise. | ||
| INFORMATION AVC curve: It is U-shaped, reflecting changes in specialization. • MC curve cuts through the minimum point of the average variable cost (AVC) curve. | ||
| As output increases, what happens to the average fixed cost (AFC)? | As output increases → AFC falls since it is spreading a fixed cost over larger and larger output. | |
| INFORMATION ATC curve: • Like MC and AVC, the ATC curve is also U-shaped. • The MC curve intersects the ATC curve at its minimum point. | ||
| Assuming the existence of an efficient scale, the MC, ATC, and AVC curves are A. vertical. B. horizontal. C. hill-shaped. D. U-shaped. | D. U-shaped. | |
| Suppose the wage rate that a company pays its workers increases. Which is true? A. TC will increase, but ATC will decrease. B. TVC will increase, but AVC will decrease. C. The MC curve will become hill-shaped. D. The TFC and AFC will not change. | D. The TFC and AFC will not change | |
| If a firm doubles the amount of all inputs, output increases by more than double → ATC falls when production expands (Increased specialization, lower input costs since you can buy in bulk, use of more efficient machinery). What scale? | Economies of scale (increasing returns to scale) | |
| If a firm doubles the amount of all inputs, output increases by less than double → ATC rises when production expands (Coordination problems increase as size of firm increases). What scale? | Diseconomies of scale (decreasing returns to scale) | |
| If a firm doubles the amount of all inputs, output doubles → ATC doesn’t change when production expands (constant) What scale? | Constant returns to scale |
Created by:
logandubois5