chapter 8] Flashcards
true or false: there are fixed factors in the long run
false
profit maximizing firms choose from the available alternatives the ____________ method of producing any output
least-cost
principle of substitution
in response to changes in factor prices, profit maximizing firms will substitute toward the cheaper factors and substitute away from the more expensive factors
a long run curve represents the boundary…
between attainable and unattainable costs for the given technology and given factor prices
the shape of the LRAC curve depends on…
the relationship between inputs and outputs as the whole scale of a firm’s operation changes
increasing returns lead to
decreasing long-run average costs
constant returns lead to
constant long-run average costs
decreasing returns lead to
increasing long-run average costs
what does the SRATC curve represent?
specific plant size
how are LRAC and STRATC curves related?
STRATC is tangent to the LRAC curve
in what directions can the LRAC curve shift?
upward/downward; in response to changes in the prices of factors
increasing in factor prices shift LRAC curves….
upward
decrease in factor prices and technological advances shift the LRAC curves
downward
what is the most important influence on costs of production and on material standards of living?
increases in outputs made possible by technology improvements
changes in technology are often ________________
to changing economic signals
true or false: changes in technology often result from the firms’ responses to changes in the economic environment
true
3 types of technological change
- new production techniques
- improved inputs
- new products
expand LRAC
long run average cost curve
economics of scale
reduction of long-run average costs resulting from an expansion in the scale of a firm’s operations so that more of all inputs is being used
increasing returns (to scale)
a situation in which output increases more than in proportion to inputs as the scale of a firm’s production increases. A firm in this situation is a decreasing-cost firm
minimum efficient scale (MES)
smallest output at which LRAC reaches its minimum; all available economies of scale have been realized at this point
constant returns (to scale)
a situation in which output increases in proportion to inputs as the scale of production is increased. A firm in this situation is a constant-cost firm
decreasing returns (to scale)
situation in which output increases less than in proportion to inputs as the scale of a firm’s production increases. A firm in this situation is an increasing cost firm
development in technology shifts LRAC curves in what direction?
down
the development of new products is a crucial part of….
the steady increase in living standards
what should firms do if they are faced with increases in the price of an input?
- substitute away
- innovate away
