630. Micro. Ch7.

Question 1

Define marginal productiviy

Answer 1

Definition. The term “marginal productivity” refers to the extra output gained by adding one unit of labor; all other inputs are held constant

Question 2

Law of Diminishing Marginal Returns. As you increase ___, your marginal productivity eventually declines.

Answer 2

as you increase output, your marginal productivity eventually declines

Question 3

Maringal productivity is the extra ___ associated with the extra ___.

Answer 3

the extra output associated with extra input

Question 4

Increasing marginal costs eventually cause ___.

Answer 4

increasing average costs.

Question 5

Increasing returns to scale is when ___ falls with output.

Answer 5

when average cost falls with output

Question 6

Constant returns to scale is when ___ are constant with respect to output.

Answer 6

when average costs are constant with respect to output

Question 7

Decreasing return to scale is when your average costs ___ with output.

Answer 7

when your average costs rise with output

Question 8

Economies of scale is when ___ fall with ___.

Answer 8

average costs fall with output

Question 9

Diseconomies of scale is when ___ increase with ___.

Answer 9

average costs increase with output

Question 10

Learning curves mean that current production ___ future costs.

Answer 10

that current production lowers future costs.

Question 11

When products are characterized by learning curves, it is important to look over the ___ of a product.

Answer 11

it is important to look over the life cycle of a product.

Question 12

Economies of scope is when the ___ of two is jointly less than ___.

Answer 12

when the cost of production two output jointly is less than the cost of producing them separately

Question 13

Formula for economies of scope

Answer 13

Cost(Q1,Q2) < Cost(Q1)+Cost(Q2)

Question 14

A reduction in average cost translates to ___.

Answer 14

an immediate increase in profit

Question 15

Profit Formula

Answer 15

(Price - Average Cost) * Quantity
or
(P-AC)*Q=Profit

Question 16

Bottlenecks are when more workers, or ___, must share a fixed amount of a complementary input.

Answer 16

when more workers, or any variable input, must share a fixed amount of a complementary input.

Question 17

Diminishing maringal productivity implies ___

Answer 17

increasing marginal cost

Question 18

Once the marginal cost rises above the average cost, ___

Answer 18

the average cost will rise as well

Question 19

increasing marginal costs eventually lead to ___.

Answer 19

increasing average costs

Question 20

In the presence of fixed costs, increasing maringal cost gives you a ___

Answer 20

U-shaped average cost curve

Question 21

Sony guy did not take the 100,000 unit deal because ___

Answer 21

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.

Question 22

the law of diminishing returns is primarily a ___ phenomenon arising from at least one ___ like ___ or ___.

Answer 22

short-term
factor of production
capital
plant size

Question 23

The same factors that cause diminishing marginal return in the short run can also cause ___ returns ___ in the ___.

Answer 23

decreasing returns to scale in the long run.

Question 24

Managers often behave as if they have a fixed amount of ___ so giving them more decisions often lead to managerial ___ that ____ costs.

Answer 24

they have a fixed amount of decision-making capability

managerial bottlenecks that raise costs

Question 25

Maxim: look ahead and ___

Answer 25

reason back

Question 26

if MC falls below MR, ___

Answer 26

it becomes profitable to increase output

Question 27

Total Cost

Answer 27

Fixed Cost + Variable Cost

Question 28

AFC=

Answer 28

TFC/Q

Question 29

AVC=

Answer 29

TVC/Q

Question 30

ATC=

Answer 30

TC/Q or AFC+AVC