Chapter 7 - Producers in the Short Run Flashcards
What are the 4 types of inputs for production?
Outputs from another firm - intermediate products (ex. electricity)
Provided directly by nature (ex. land)
Services of labour
Services of physical capital (ex. machines and facilities)
What is the production function?
Shows the max output that can be produced by combining inputs
How do you calculate profits?
Total revenue-total costs
How do you calculate accounting profits?
Total revenue-explicit costs
How do you calculate economic profits?
Total revenue-(explicit+implicit costs)
Economic profits is (greater/less) than accounting profits
Less than
What are explicit costs?
Labour, rentals, interest payments on debt, purchases
What are implicit costs?
Opportunity cost of time and capital
When talking about a firm’s profit we always mean _ profit
Economic
How do you calculate a firm’s economic profit?
TR(total revenue)-TC(total cost)
What is the short run?
Time period where fixed factors can’t be changed
What is a fixed factor?
Element of capital, land, management services, supply of skilled labour
What are variable factors?
Inputs that aren’t fixed and can be varied in the short run
What is the long run?
Time period where all firm’s factors of production can be varied, but its technology is fixed
What is the very long run?
Time period where all firm’s factors of production and its technology can be varied
What is total product (TP)?
Total produced in a given time
What is average product (AP)?
Total product/# of units of labour
What is the equation for AP?
AP=TP/L
What is marginal product (MP)?
Change in total output that results from using one more unit of a variable factor
What is the equation for MP?
change in TP/change in L
As more workers are added, each can specialize in one task, and the workers’ MP _
Rises
If there is a fixed amount of physical capital, eventually the MP is likely to _
Fall
When AP is _, AP=MP
Maximum
When AP is _, MP>AP
Increasing
When AP is _, MP
Decreasing
What does the law of diminishing return state?
If increasing amounts of a variable factor are applied to a given quantity of a fixed factor, the MP of the variable factor declines
How do you increase output in the short run?
Combine a variable factor with a given amount of the fixed factor
If MP>AP, new AP will be (higher/lower)
Higher
What is the equation for total cost (TC)?
Total fixed cost+total variable cost
TC=TFC+TVC
What is the equation for average total cost (ATC)?
Avg fixed cost+avg variable cost
ATC=AFC+AVC
What is total fixed cost (TFC)?
Costs of the fixed factor, doesn’t vary with level of output
Give an example of a TFC
Annual cost for renting a factory
What is the equation for AFC?
AFC=TFC/Q
What is total variable costs (TVC)?
Costs of the variable factors, varies with level of output
Give an example of TVC
Labour costs, material costs
What is the equation for AVC?
AVC=TVC/Q
What is total costs (TC)?
Sum of fixed costs and variable costs
What is the equation for ATC?
ATC=TC/Q
ATC=AVC+AFC
What is marginal cost (MC)?
Cost of producing each additional unit of output
What is the equation for MC?
MC=
change in TC/change in Q=
change in TVC/change in Q
TFC (does/doesn’t) change with output
Doesn’t
AFC declines steadily as output (rises/falls)
Rises
What is the shape of ATC? (3)
ATC curve declines
Reaches a min
Then rises
The _ curve is U shaped
ATC
MC curve intersects the _ and _ curves at their minimums
ATC, AVC
As AP rises, AVC (falls/rises)
Falls
As AP falls, AVC (falls/rises)
Rises
Each additional worker adds the (same/different) amount to total cost but (same/different) amount to total output
Same, different
AVC is at its min when AP reaches its _
Max
MC reaches its min when MP reaches its _
Max
What is the capacity of the firm?
Level of output at the minimum short-run average total cost (SRATC)
Capacity is the largest output that can be produced without encountering (falling/rising) average costs per unit
Rising
What is excess capacity?
Firm that produces an output less than the point of minimum average total cost (ATC)
In the short run, if the AP curve is rising, the MP curve lies (above/below) the average product curve above this range
Above
