Ch. 11 Technology, Production, and Cost

Question 1

Technology

Answer 1

processed used by firms to turn inputs into outputs

Question 2

Technological Change

Answer 2

change in the ability of a firm to produce a given level of output with a given set of inputs

Question 3

Short Run

Answer 3

period of time when at least one of a firm’s inputs is fixed

Question 4

Long Run

Answer 4

period of time when a firm can vary all of its inputs, adopt new technology, and vary its physical plant size

Question 5

Opportunity Cost

Answer 5

highest-valued alternative that must be given up to engage in an activity

Question 6

Explicit Cost

Answer 6

cost that involves spending money

Question 7

Implicit Cost

Answer 7

a non-monetary opportunity cost

Question 8

Production Function

Answer 8

relationship between inputs employed by a firm and the max output it can produce

Question 9

Marginal Product of Labor

Answer 9

the additional output a firm produces from hiring one more worker

Question 10

Law of Diminishing Returns

Answer 10

at some point adding more of a variable input to the same amount of fixed input will cause the marginal product of the variable to decline

Question 11

Average Product of Labor

Answer 11

total output produced by a firm divided by the quantity of workers

Question 12

Marginal Cost (MC)

Answer 12

change in a firm’s total cost from producing one more unit of a good/service

Question 13

Relationship between Marginal Product of Labor and Marginal Cost

Answer 13

• when marginal product of labor rising, marginal cost of output is falling
• when marginal product of labor is falling, marginal cost of output is rising
• this is why graph is U shaped

Question 14

Average Fixed Cost (AFC)

Answer 14

fixed cost divided by quantity produced

Question 15

Average Variable Cost (AVC)

Answer 15

variable cost divided by quantity produced

Question 16

Average Total Cost (ATC)

Answer 16

total cost divided by quantity produced

-is the sum of the average fixed and average variable cost

Question 17

Relationship of MC and ATC/AVC

Answer 17

-marginal cost intersects average variable and total costs at their minimums

Question 18

Average Fixed Cost and Quantity Relation

Answer 18

As quantity gets larger, average fixed cost decreases

Question 19

Average Variable/Total Costs and Quantity

Answer 19

As quantity gets larger avg variable and total costs get closer together due to the decrease in avg fixed cost

Question 20

Ling-Run Average Cost Curve

Answer 20

shows the lowest cost where firms can produce a given level of quantity output in the long run (with no fixed inputs)

Question 21

Economies of Scale

Answer 21

when the firm’s long-run average cost falls as it increases the quantity produced

Question 22

Constant Returns to Scale

Answer 22

situation when a firm’s long-run avg costs remain unchanged with increased quantity output

Question 23

Minimum Efficient Scale

Answer 23

the level of output where all the economies of scale are exhuasted

Question 24

Diseconomies of Scale

Answer 24

when a firm’s long-run avg costs rise with increased quantity output

Question 25

Isoquant

Answer 25

curve that shows all the combinations of two inputs (ex-capital and labor) that will produce the same level of output
-similar to an indifference curve

Question 26

Marginal Rate of Technical Substitution (MRTS)

Answer 26

rate at which a firm is able to substitute one input for another- keeping the level of output constant
-is the slope of the isoquant

Question 27

Isocost Line

Answer 27

all the combinations of 2 inputs (ex-capital and labor) that have the same total cost
-similar to a budget constraint

Question 28

Slope of Isoquant is …

Answer 28

The MRTS (marginal rate of technical substitution)

Question 29

Slope of the Isocost line is …

Answer 29

ratio of input price on the horizontal axis divided by the input price on the vertical axis
-NOTE: this is backward from typ “rise/run” slope in its wording bc it is in reference to price. Slope is still slope either way (see Pg. 394 for more)

Question 30

Determinates of the Cost-Minimizing Choice

Answer 30

1. Technology Available (rep. by isoquant)

2. Input Prices (rep. by iscost)