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micro economics > Chapter 8 > Flashcards

Chapter 8 Flashcards

1
Q

The overriding goal of the firm is to what?

A

maximize profits

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2
Q

Profits =

A

Total revenue - Total cost

TR - TC

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3
Q

Total revenue =

A

Price * Quantity

P* Q

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4
Q

Short run

A

a time period when at least 1 resource is fixed

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5
Q

Long run

A

A time period when all resources can vary

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6
Q

Production

A

The transformation of resources into G/S

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7
Q

TPP stands for what

A

Total Physical Production

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8
Q

What is Total Physical Production?

A

The maximum output that can be produced when variable resources are added to fixed amounts of other resources

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9
Q

APP stands for what?

A

Average Physical Production

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10
Q

What is Average Physical Production?

A

Average out put per worker

TPP/L

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11
Q

What does MPP stand for?

A

Marginal Physical production?

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12
Q

What is Marginal physical Production?

A

The additional output produced by adding one more worker.

Change in TPP/ Change in L

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13
Q

Law of Diminishing Marginal Returns

A

When equal amounts of a variable resource (labor) are combined with a fixed resource (land), increases in total output will eventually decline.

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14
Q

AP tells you what?

A

average output per worker

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15
Q

MP tells you what?

A

the additional output by adding one worker

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16
Q

If MP > AP then what happens to AP?

A

AP increases

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17
Q

If MP = AP then what happens to AP?

A

AP is maximized

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18
Q

If MP < AP then what happens AP?

A

AP decreases

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19
Q

What does TFC stand for?

A

Total fixed cost

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20
Q

What is total fixed cost?

A

The cost the firm has to pay wheter it produces or not

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21
Q

What does TVC stand for?

A

Total variable cost

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22
Q

What is TVC?

A

Cost that rises and falls as production rises and falls.

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23
Q

Rent, insurance and lease payments are examples of what?

A

Total Fixed cost

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24
Q

Labor and fuel are examples of what?

A

Total variable cost.

25
Q

TC means what?

A

Total cost

26
Q

What is TC?

A

Sum of Total Variable Cost + Total Fixed Cost

TVC + TFC

27
Q

Variable cost can be controlled or altered in the short-run how?

A

By changing production techniques but not fixed cost.

28
Q

What does AFC stand for?

A

Average Fixed Cost

29
Q

What does AFC mean?

A

Total fixed cost / Output

TFC / Q

30
Q

AFC always does what as output increases?

A

AFC increases as output increases

31
Q

What does AVC stand for?

A

Average variable cost

32
Q

What is Average variable cost?

A

Total variable cost/ Output

TVC/Q

33
Q

AVC first decreases reaches a minimum and does what?

A

then increases as output increases

34
Q

ATC stands for what?

A

Average Total cost

35
Q

What is average total cost?

A

Total cost/ Output

TC/Q) or (AFC + AVC

36
Q

ATC first decreases reaches a minimum and then does what?

A

increases as output increases

37
Q

What does MC mean?

A

Marginal cost

38
Q

How do you find MC?

A

Change in total cost/ change in quantity of output

Change in TC / Change in quantity

39
Q

What is MC?

A

The additional cost of 1 more unit of output

-cost a firm can control directly and immediately

40
Q

AVC, ATC and MC have their shape cure because of what?

A

Law of diminishing returns

41
Q

SRATC stands for what?

A

short run average total cost curve

42
Q

MC intersects AVC where?

A

At AVC ‘s minimum

43
Q

MC intersects ATC where?

A

At ATC’s minimum

44
Q

AVC is identified by what roman numeral?

A

I

45
Q

ATC is identified by what roman numeral?

A

II

46
Q

MC is identified by what roman numeral?

A

III

47
Q

Law of Diminishing Returns does not apply when?

A

Does not apply when all resources are variable thus does not apply in the long run.

48
Q

What is scale?

A

Size; when all resources change the scale of the firm has changed.

49
Q

Once a scale is chosen the firm is not working in what?

A

Long-run because then atleast one resource is fixed

50
Q

What is economies of scale?

A

Cost per unit decreases as unit increases

51
Q

Diseconomies of scale is what?

A

Cost per unit increases as output increases

52
Q

What is constant Returns to scale?

A

Cost per unit remains constant as output increases

53
Q

MES stands for what

A

Minimum Efficient scale

54
Q

What is minimum efficient scale?

A

the minimum point on the Long Run Average Total Cost Curve; the output level at which the cost per unit is the lowest.

55
Q

What is the reasons for economies of scale ?

A

1) specialization

2) Larger machinery

56
Q

How is specialization important for economies of scale?

A

Large firms are able to specialize allowing each worker to now have one task to perform instead of 5 or 6

57
Q

How is Larger machinery important for economies of scale?

A

It allows more output per quantity of resources.

  • For example blast furnace produces twice the amount but not twice the cost to operate
  • Explains downward slope of LRATC
58
Q

What is the reason for DIseconomies of scale?

A

Size can be an issue

59
Q

How can size be a reason for diseconomies of scale?

A
  • More red tape, “passing the buck”
  • Difficulty of efficiency controlling and coordinating a firm’s operation as it becomes a larger scale producer.
  • Additional managers needed which can lead to supervision problems and coordination problems
  • meetings are held more often

micro economics (4 decks)

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