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Econ247 Section 2 > Chpt 13 > Flashcards

Chpt 13 Flashcards

1
Q

What is the production function

A

Shows how the amount of output a firm produces depends upon the amount of an input it employs

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2
Q

What is the total cost curve

A

Shoes how the firms total cost of production varies with the amount of output it produces

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3
Q

What is marginal product

A

Change in output
Ex. Marginal product for 1st worker is 50 cookies per hour
Marginal product for 2nd worker 90-50 is 40 cookies/ hr

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4
Q

What is the reason for diminishing marginal product

A

Helens baking equipment is fixed
As more workers are added they have to share this equipment
Because of crowding each additional worker contributes less to cookie production
Change in total number of cookies produced

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5
Q

What are the two key microeconomic relationships in cost of production

A
  1. Production function

2. Total cost curve

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6
Q

what is the information in the production function used for

A

used to develop Helen’s TOTAL COST CURVE

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7
Q

What does the total cost curve show

A
  • shows the total cost of producing various number of cookies
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8
Q

is the factory costs a fixed or variable cost?

A

fixed

incurred whether cookies are produced or not

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9
Q

Wages: $10/hour for each employee

if she hires a second worker what happens to total cost

A

the total cost will increase by $10/ hour and the amount of cookies produced will increase by that worker’s marginal product

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10
Q

what happens to the total cost when addinig employees

A
  • at first it increases slowly but as total output increases, total cost increases faster and faster
  • the cost curve becomes steeper
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11
Q

what is output

A

total number of cookies produced

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12
Q

how is output measured

A

on the vertical axis of the production function but

- measured on the horizontal axis of the cost curve

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13
Q

when out put is low what is the production function curve like as as the cost curve

A

production function is relatively steep and

cost curve is relatively flat

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14
Q

when output is low, marginal cost is what

and what does this mean

A

relatively high

means her total cost will NOT rise very quickly. her total cost curve is relatively flat

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15
Q

when output is high, marginal cost is what and what does this mean

A

marginal cost is low,
production function is relatively flat
she is already producing many cookies

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16
Q

if the output is high and marginal cost is low, in order to increase output what will she need to do

A

add a lot of extra labour
therefore, her total cost will rise rapidly
therefore her total cost curve is relatively steep

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17
Q

explain diminishing

A

explains why production increases rapidly as the first few workers are hired

  • but slowly as additional workers are employed
  • also explains why total cost increases slowly at low levels of output and why it increases more rapidly at higher levels of out put
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18
Q

What is the goal of a firm

A

to maximize profit

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19
Q

what is the formula for profit

A

total revenue - total cost

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20
Q

what is total revenue for a firm

A

the amount a firm receives for sale of its output

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21
Q

what is total cost

A

the market value of the inputs a firm uses in production

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22
Q

when economist speak of a firm’s cost of produciton what is included

A

all opportunity costs

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23
Q

what are explicit costs

A

input costs that require an outlay of money by the firm

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24
Q

what are implicit costs

A

input costs that do not require an outlay of money by the firm

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25
Q

what is the formula for profit from an economist’s point of view

A

profit = total revenue - explicit costs - implicit costs

26
Q

what is the formula for profit from an accountant’s point of view

A

Profit = total revenue - explicit costs

27
Q

what is the difference of profit between the economists point of view and the accountant’s

A

because the accountant ignores implicit costs, accounting profit is usually hire than economic

28
Q

what motivates a firm

A

economic profit

29
Q

what are fixed costs

A

costs that do not vary with the quantity of output produced

- ie rent

30
Q

what are variable costs

A

costs that do not vary with the quantity of output produced

31
Q

what is the formula for a firm’s total cost

A

fixed + variable costs = total costs

32
Q

what do we use average costs for

A

to decide how much to produce

33
Q

what is the formula for average cost

A

total cost / quantity of output

tells us how much does it cost to make typical bagel

34
Q

what is the formula for average fixed cost

A

fixed cost/ quantity of output

35
Q

what is the formula for variable cost

A

variable cost/ quantity of output

36
Q

What are marginal costs

A

the increase in total cost that arises form an extra unit of production

how much does it cost to increase production by one bagel

37
Q

what is the formula for marginal cost

A

change in total cost / change in qty

38
Q

avg total costs does what as they are produced

A

varies

39
Q

with many firms, diminishing marginal product does what

A

does not start to occur immediately after the first worker is hired

  • depending on the production process, the second or 3rd worker might have higher marginal product than the first
  • because a team of workers can divided tasks and work more productively
  • these firms would first experience increaseing marginal product for a while before diminishing marginal product sets in
40
Q

what happens when there are low levels of output

A

there would be an increase in marginal product and the marginal cost curve falls

  • eventually they start to expericne diminishing marginal product and marginal cost curve would start to rise
  • this makes the average -variable-cost curve U-shaped
41
Q

what are the 3 important properties of cost curves for a typcial firm

A
  1. marginal cost evenutally rises with the quantity of output
  2. average total cost curve is U-shaped
  3. marginal cost curve crosses the avg-total-cost curve at the minimum of avg total cost
42
Q

many firms division of total costs b/w fixed and variable depends on what

A

time

43
Q

what is an example of fixed costs in the shortrun

A
  • in a period of a few months Ford cannot adjust the number or size of its factories
  • only way they can make more cars now is to hire additional employees
  • the cost of these factories is a fixed cost in the short run
44
Q

what is an example of variable costs in the long run

A
  • period of several years

- ford can expand the size of their factories, build new factories or close old ones

45
Q

many decisions are _________ in the short run but ______in the long run .

A

fixed, variable

46
Q

the firm’s long run cost curve _____________from its short run cost curve

A

differs

47
Q

how are short run and long run costs related

A

add

48
Q

what happens to avg-total-cost-curve in the long-run

A

much flatter U-shaped

49
Q

what happens to avg-total-cost-curve in the short run

A

lie on or above the long-run curve

- because firms have a greater flexibility in the long run

50
Q

what is important about the long run

A

firms have a greater flexibility

- firms get to choose which short run curve it wants to use

51
Q

what is important about the short run

A

company has to use whatever short run curve it chose in the past

52
Q

how long does it take for a company to reach long term

A
  • depends on the firm
    1. a year or longer for a major manufacturing firm (ie ford)
    2. person running a lemonade stand (can go buy a larger jug in an hour or less)
53
Q

What does the long-run average cost curve show economies of

A

important information about the technology for producing a good

54
Q

what are economies of scale

A
  • long-run avg total cost falls as the quantity of output increases
55
Q

what are diseconomies of scale

A

long-run avg total cost rises as the quantity of output increases

56
Q

what is constant returns to scale

A

-long-run avg total cost stays the same as the quantity of output changes

57
Q

what causes economies of scale

A

often arise because higher production levels allow specialize amount workers
- this allows each worker to become better at their tasks

58
Q

what causes diseconomies of scale

A

arise because of coordination problems (inherent in large corporations)
- the more produced, the more stretched the managers become, and the less effective they are at keeping costs down

59
Q

how does the diagram who why long run avg total cost curves are U-shaped

A

low levels of production

  • the firm benefits form increased size
  • because it can take advantage of greater specialization
  • coordination problems are not yet acute
60
Q

How are high levels of production benefited by specialization

A
  • benefits of specialization have already been realized and coordination problems become more sever as the firm grows larger and larger
  • thus
  • long run av total cost is falling at low levels of production
    • because of increasing specialization and rising at high levels of production because of increasing coordination problems

Econ247 Section 2 (2 decks)

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