7.3-1; 7.3-2; 7.3-3; 7.3-4; 7.3-5 Flashcards
Variable Cost
Cost of hiring the variable input needed to produce a given amount of output
What two things are needed to find variable cost?
The amount of labor needed and how much does the labor cost
Wage
Is a payment to an employee for labor services
What are at least 3 types of cost?
Variable cost, Fixed cost, Average cost, Marginal cost, Total cost
How is the total amount of money spent on labor for any given output calculated?
The total number of workers needed for a given output multiplied by their wage
How can variable cost be graphed?
By plotting variable cost and different outputs on a two dimensional graph
Inefficient points
Points in which additional workers cause total product to fall
T or F: Inefficient points are included on graphs?
False: Inefficient points are excluded from the graph
Variable cost curve
The graphed version of variabl cost that shows the cost per amount of output
What is on the axis’s of a variable cost curve?
Output is on the horizontal axis and Variable cost is on the vertical axis
What happens when the points begin to go backwards on a VC curve?
No more points are graphed because that is the point in which more labor reduces output
T or F: A variable curve graph is a straight line
False: A variable curve graph is a curve
When the points on a VC graph begin to go backwards does the output become more or less efficient?
The output becomes less efficient because more labor is producing less product
T or F: A VC graph does have a maximum output point
True
At the maximum output point on a VC graph it is interpreted that..?
Adding more labor will decrease efficiency and output
Marginal cost
Amount it costs to produce one additional unit of output
Mathmatical definition of marginal cost
Change in variable cost divided by the change in total product
Why does the marginal cost change?
Productivity changes
T or F: As productivity increases marginal cost decreases
True
When graphing marginal cost what are the axis’s labled?
The vertical axis is marginal cost while the horizontal axis is the total product
T or F: Productivity and cost are inversely related
True
T or F: Marginal cost and marginal product are directly related
False. Marginal cost and marginal product are inversely related
Total product
Identifies what outputs are possible for given amounts of input
What does a variable cost curve look like?
What does a marginal product graph look like?
What does the marginal cost graph look like?
Point of inflection
Point at which the VC curve is flat
Variable cost curve
Shows how much money must be spent of labor to produce a given level of output
Why does marginal cost decrease?
Due to specilization and teamwork
Why does marginal cost increase?
Because of congestion and to many workers in the workplace
Fixed input
An item required to produce goods and services that does not demonstrate short term variations
What is an example of fixed input?
An example of fixed input would be a factory. A factory is not affected by short term variations
Productivity
Is a measure of the efficiency of production. The measure of productivity is defined as a total output per one unit of a total input
Changes in MC are always the result of changes in _____?
Productivity
The marginal cost curve mirrors what?
The marginal production curve
How do you graph a MC cruve?
By plotting the cost associated with various outputs
What is a second way to draw the MC curve?
find the slope of the variable cost
curve at several points, and plot those points below the variable cost curve.
Why are the MC curve and MP curve a mirror to each other?
because productivity and costs have a
reciprocal/inverse relationship.
Marginal cost is rising when marginal product is doing what?
Falling. They are inversly related
What is the relationship between marginals and averages?
When marginals are higher than averages they pull averages up and when they are lower they pull averages down
Marginal cost equals wage dived by what? MC = W/?
Marginal product MC = W/MP
When marginal product reaches a maximum, marginal cost is at a _______?
Minimum. MP and MC are inversely related
Why does marginal product fall?
Because of congestion
Why does marginal product rise?
Because of teamwork and specilization
What is equal to Wage divided by MP?
Marginal cost. MC = W/MP
What mirrors a marginal cost curve?
Marginal product curve
Can a firm have partial workers?
Yes they would be considered part time employees
T or F: A rational firm will always produce goods at any level. Even if that level is inefficient.
False: No rational firm would produce at an inefficient level
Average variable cost
Is the variable cost per unit of total product
How is AVC calculated?
divide variable cost at a given total product level by that total product.
T or F: If AVC is lower than price then the firm could make a profit
True
What two cost determine if a firm could make a profit?
Variable cost and Fixed cost
What does AVC do?
AVC tells a firm if it has the potential to make a profit
What is another way to derieve the marginal cost curve?
Plot it under the variable cost curve
Marginal cost is the slope of the?
Variable cost curve at any given point
What point on the VC curve has the smallest slope?
The point of inflection
At the inflection point the slope changes from ____ to ____
Concave/Convex
The inflection point is the lowest point on what curve?
The MC curve. The MC is decreasing up to that point and increasing after
What does the VC curve show?
the increasing variable
costs associated with each output level.
