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ECON 208 > Chapter 7 - Producers in the short run > Flashcards

Chapter 7 - Producers in the short run Flashcards

1
Q

6 types of firms

A

Single proprietorships, Ordinary partnerships, Limited partnerships, Corporations, State-owned (crown) corporations, Non-profit organizations

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2
Q

One other type of firms

A

transnational corporations (TNCs) or multinational enterprises (MNEs)

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3
Q

2 types of (financial) capital firms use

A

equity and debt

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4
Q

what is equity and what happens w/ firm profits

A

way to acquire funds from the owners. Synonym for stocks or shares. (actions). Profits may be distributed as dividends

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5
Q

how firm uses debt for financial capital

A

give bonds to lenders (of money). they will have to give them their money back with interest

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6
Q

who are the firm’s creditors

A

the lenders (not the owners)

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7
Q

2 key assumptions of economists about firms

A

1) Profit-maximizers

2) Assumed to be a single, consistent, decision-making unit

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8
Q

What firms must do aside maximizing profits

A

Become socially responsible

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9
Q

How can we respond to socially irresponsible firms (2)

A

1) Duty of gvt to set rules

2) Expression of consumers’ preferences in the market place

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10
Q

4 types of inputs firms use for production

A

1) Intermediate products
2) Inputs provided by nature
3) Inputs provided by people (such as labour services)
4) Inputs provided by services of physical capital (machines)

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11
Q

Production function

A

q = f(L,K) relation between labour/capital and output

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12
Q

production flow or stock

A

flow

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13
Q

Profits formula

A

Total revenue - Total cost

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14
Q

Accounting profits formula

A

Total revenue - Explicit cost

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15
Q

Economic profits formula

A

Total revenue - (Explicit + Implicit costs)

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16
Q

Implicit cost what it is

A

opportunity cost of the owner’s TIME and CAPITAL in the firm’s cost

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17
Q

what a positive economic profit means

A

Owner’s capital is earning more than it could in the next best alternative use

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18
Q

what an economic profit of zero means

A

Owner interested in continuing production

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19
Q

what a negative economic profit means

A

Owner must consider other options (capital not used to its best)

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20
Q

Firm’s economic profit formula

A

Pi = TR (total revenue) - TC (total cost)

21
Q

What is TR (how do you find it)

A

q x p

22
Q

What is TC (how do you find it)

A

explicit + implicit costs

23
Q

what TR depends on

A

type of demand the firm faces

24
Q

What TC depends on

A

Time horizons for decision making (will affect how firm can change capital and labour)

25
Q

Short run def

A

Length of time over which some of the firm’s factors of production are fixed, generally capital is fixed in short run

26
Q

Long run def

A

Length of time over which all factors of production of firm can vary but technology is fixed

27
Q

Very long run def

A

Length of time over which all firm’s factors of prod. can vary and its technology can vary

28
Q

Production function in the short run

A

q = f(L,K bar)

29
Q

Total product

A

Amount of output produced in a certain period

30
Q

Average product

A

AP = TP / L where L is labour or could also be another unit of the variable factor.

31
Q

Marginal product

A

MP = ▲TP / ▲L (change in total product of one more unit of variable factor (labour)

32
Q

Law of diminishing returns where it applies and what it is

A

Short run. If a variable factor is fixed, MP is likely to fall.

33
Q

MP graph important point

A

Point of diminishing returns (maximum)

34
Q

What is the point where average product crosses MP

A

Maximum point of average product

35
Q

Total cost formula

A

TC = TFC + TVC

36
Q

Average total cost formula

A

Total cost formula divided by Q –> ATC = AFC + AVC

37
Q

what MC is

A

MC = ▲TC/▲Q

Increase in total cost resulting from producing one more unit of output

38
Q

what part of TC changes in the short run

A

TVC

39
Q

Shape of MC curve and why (2)

A

U-shaped. 1) Each worker costs the same. 2) When MP reaches its maximum, MC reaches its minimum

40
Q

In terms of calculus what is MC

A

slope of TVC curve

41
Q

what is the point where MC and AVC and what is the point where MC and ATC cross

A

minimum of ATC and AVC

42
Q

behaviour of AFC curve and what this is called

A

AFC = TFC/Q Q increases so AFC decreases. It is called spreading the overhead

43
Q

Distance between ATC and AVC curves with increasing output

A

Distance between the curves decreases with increasing output because it corresponds to AFC (and AFC decreases with increasing output)

44
Q

relationship between AVC and AP

A

same as MC and MP. AVC reaches its minimum when MP reaches its maximum

45
Q

What is a firm’s capacity (2)

A

1) Level of output that corresponds to the minimum short-run ATC
2) Largest level of output without encountering rising of average cost per unit

46
Q

What is excess capacity

A

Firm that produces output less than the point of minimum ATC. (excess capacity cause capable of doing more)

47
Q

what happens to MC and AVC when firm doesn’t use its capital to its maximum -possible even though capital is fixed- (machines not used to their maximum, less employees)

A

MC and AVC stay the same

48
Q

ATC and MC curves change if price of variable factors changes

A

If price increases, ATC and MC increase. If price decreases, ATC and MC decrease

49
Q

Additional curve concerning the TFC

A

There is a short-run cost curve for each given quantity of the fixed factor. Ex : cost of machines vs number of machines

ECON 208 (8 decks)

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