630. Micro. Ch7. Flashcards
Define marginal productiviy
Definition. The term “marginal productivity” refers to the extra output gained by adding one unit of labor; all other inputs are held constant
Law of Diminishing Marginal Returns. As you increase ___, your marginal productivity eventually declines.
as you increase output, your marginal productivity eventually declines
Maringal productivity is the extra ___ associated with the extra ___.
the extra output associated with extra input
Increasing marginal costs eventually cause ___.
increasing average costs.
Increasing returns to scale is when ___ falls with output.
when average cost falls with output
Constant returns to scale is when ___ are constant with respect to output.
when average costs are constant with respect to output
Decreasing return to scale is when your average costs ___ with output.
when your average costs rise with output
Economies of scale is when ___ fall with ___.
average costs fall with output
Diseconomies of scale is when ___ increase with ___.
average costs increase with output
Learning curves mean that current production ___ future costs.
that current production lowers future costs.
When products are characterized by learning curves, it is important to look over the ___ of a product.
it is important to look over the life cycle of a product.
Economies of scope is when the ___ of two is jointly less than ___.
when the cost of production two output jointly is less than the cost of producing them separately
Formula for economies of scope
Cost(Q1,Q2) < Cost(Q1)+Cost(Q2)
A reduction in average cost translates to ___.
an immediate increase in profit
Profit Formula
(Price - Average Cost) * Quantity
or
(P-AC)*Q=Profit
Bottlenecks are when more workers, or ___, must share a fixed amount of a complementary input.
when more workers, or any variable input, must share a fixed amount of a complementary input.
Diminishing maringal productivity implies ___
increasing marginal cost
Once the marginal cost rises above the average cost, ___
the average cost will rise as well
increasing marginal costs eventually lead to ___.
increasing average costs
In the presence of fixed costs, increasing maringal cost gives you a ___
U-shaped average cost curve
Sony guy did not take the 100,000 unit deal because ___
He know that he would use money producing 100,000 units beats increasing output would require hiring and training more workers and an expansion of facilities, raising his average cost or break-even price.
the law of diminishing returns is primarily a ___ phenomenon arising from at least one ___ like ___ or ___.
short-term
factor of production
capital
plant size
The same factors that cause diminishing marginal return in the short run can also cause ___ returns ___ in the ___.
decreasing returns to scale in the long run.
Managers often behave as if they have a fixed amount of ___ so giving them more decisions often lead to managerial ___ that ____ costs.
they have a fixed amount of decision-making capability
managerial bottlenecks that raise costs
Maxim: look ahead and ___
reason back
if MC falls below MR, ___
it becomes profitable to increase output
Total Cost
Fixed Cost + Variable Cost
AFC=
TFC/Q
AVC=
TVC/Q
ATC=
TC/Q or AFC+AVC
