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BACC 201 > Chapter 4 > Flashcards

Chapter 4 Flashcards

1
Q

This section deals with understanding of the production function and explores its
relations to cost function. Information of these is the basis for organizational short run and long
run procurement and production scheduling.

A

Theory of the firm

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2
Q

_____ in economic terms is generally understood as the transformation of inputs into
outputs. The inputs are what the firm buys, namely productive resources, and outputs are what it sells.

A

Production

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3
Q

defined as producing goods which satisfy some human want

A

Production

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4
Q

include resource inputs used to produce goods and services

A

Factors of production

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5
Q

Four major categories of factors

A

Land
Labor
Capital
Entrepeneur

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6
Q

occurring goods like water, air, soil, minerals, flora and fauna that are used in the creation of products.

A

Land-naturally

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7
Q

The payment for use and the received income of a
land owner is rent.

A

Land-naturally

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8
Q

human effort used in production which also includes technical and marketing expertise. The payment for someone else’s labor and all income received from one own labor is wages.

A

Labor

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9
Q

classified as the physical and mental contribution of an employee to the production of the good(s)

A

Labor

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10
Q

human-made goods which are used in the production of other goods. These include machinery, tools, and buildings.

A

Capital

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11
Q

responsible in combining the other three factors of production.

A

Entrepreneur

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12
Q

Name all the final goods and services

A

Factors of Production:
Land
Labor
Capital
Entrepreneur

Payment:
Rent
Wages/Salary
Interest Rate
Profit

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13
Q

indicates the maximum amount of commodity ‘x’ to be produced from various combinations of input factors. It decides on the maximum output to be produced from a given level of input, and how much minimum input can be used to get the desired level of output. The ______________ assumes that the state of technology is fixed. If there is a change in technology then there would be change in production function.

A

Production function

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14
Q

Two classification of inputs

A

Fixed inputs
Variable input

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15
Q

Prodution function according to period of time

A

Short-run production function
Long-run production function

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16
Q

It has its own constraints in producing more goods

A

Law of diminishing returns

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17
Q

Same inputs: flexible, variable

A

Long-run production function

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18
Q

Same inputs: fixed, limited

A

Short-run production function

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19
Q

Can be readily change

A

Variable inputs

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20
Q

Cannot be readily change

A

Fixed inputs

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21
Q

the maximum level of output that can be produced with a given amount of input.

A

Total production (TP)

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22
Q

output produced per unit of input

A

Average production

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23
Q

the change in total output produced by the last unit of an input

A

Marginal product (MP)

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24
Q

change in the quantity produced to a given change in the labor

A

Marginal production of labor

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25
Q

change in the quantity produced to a given change in the capital

A

Marginal production of capital

26
Q

Both MP and AP will first ______ than _______ with MP becoming ______

A

Increase, decrease, negative

27
Q

When AP is ________, MP is ____ the average

A

Rising/ falling, Greater/ less than

28
Q

MP reaches its _____, before the peak of AP is _____

A

Peak, achieved

29
Q

At the peak of AP, AP is _____ to MP

A

Equal

30
Q

In the long run the fixed inputs like machinery, building and other factors will change along with the variable factors like labor, raw material etc. With the equal percentage of increase in input factors various combinations of returns occur in an organization. The change in percentage output resulting from a percentage change in all the factors of production. They are increasing, constant and diminishing ________.

A

Return to scale

31
Q

Name all the 3 types of returns to scale

A
  1. Increasing return to scale
  2. Decreasing return to scale
  3. Constant return to scale
32
Q

if the output of a firm increases more than in proportionate to an increase in all inputs

A

Increasing return to scale

33
Q

if the output of a firm increases more than in proportionate to an increase in all inputs

A

Decreasing return to scale

34
Q

when all inputs are increased by a certain percentage the output increases by the same percentage.

A

Constant return to scale

35
Q

Two major categories of cost

A

Explicit cost (total cost)
Implicit cost

36
Q

Refers to the actual cash outlay

A

Explicit cost

37
Q

Payment to the factors of production

A

Explicit cost

38
Q

Total peso expense even without an output produced

A

Fixed cost

39
Q

Expenditures that varies based on the output produce

A

Variable cost

40
Q

The additional cost incurred in additional unit of product produced

A

Marginal cost

41
Q

Synonymous to opportunity cost

A

Implicit cost

42
Q

the opportunity cost incurred when for an instance the owner of the factory employs the factor in one use rather than its best alternative cost.

A

Implicit cost

43
Q

There is a relationship between the volume or quantity created and sold and the resulting impact on __________________

A

Revenue function, cost function, profit function.

44
Q

This is calculated by dividing the total cost by the quantity

A

Average cost

45
Q

As the sales volume increases, revenue and cost increase and profit becomes progressively less negative, turns positive, and then becomes increasingly positive. There is a zone of lower volume levels where economic costs exceed revenues and a zone on the higher volume levels
where revenues exceed economic costs.

A

Breakeven Analysis

46
Q

Are retrospective (past) costs that have already been incurred and cannot be recovered.

A

Sunk cost

47
Q

The price paid for a plant originally at the time of purchase.

A

Historical cost

48
Q

The price that would have to be paid currently for acquiring the same plant.

A

Replacement cost

49
Q

Is the addition to costs resulting from a change in the nature of level of business activity.

A

Incremental cost

50
Q

Change in cost caused by a given managerial decision

A

Incremental cost

51
Q

Total cost incurred by the society on account of production of a good or service.

A

Social cost

52
Q

The cost associated with the exchange of goods and services.

A

Transaction cost

53
Q

Decreasing long- run average cost of the company through the expansion of production capacity. It is a long run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase.

A

Economies of scale

54
Q

Derived partially from learning by doing

A

Economies of scale

55
Q

Four main categories of internal economies of scale

A

Technical economies
Managerial economies
Marketing economies
Financial economies

56
Q

These arise mainly from increased specialization
and indivisibilities. Larger firms can make use of more specialized equipment and labor in the production process, for example by using assembly lines.

A

Technical economies

57
Q

Large firms find it easier to attract and use more specialized managers, who are more skilled and productive at performing specific managerial
functions.

A

Managerial economies

58
Q

These relate mainly to obtaining bulk discounts; by buying
in bulk larger firms can often enable their suppliers to obtain the technical economies of scale above.

A

Marketing economies

59
Q

The most obvious factor here is that large firms can often
borrow at a lower interest rate, because they have a better credit rating, representing a lower default premium.

A

Financial economies

60
Q

average cost reduction overtime due to production experience. It refers to improved production efficiencies stemming from the knowledge gained
through production experience.

A

Learning curve

61
Q

keeping employees motivate to stay in their workplace, rather than seek employment in outside.

A

Minimize turn-over

62
Q

Cost reduction from producing complementary products

A

Economies of slope

BACC 201 (2 decks)

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