FINALS Flashcards
Creation of goods and services
Converts natural resources to products
Production
Natural Resources is equal to what?
Finished Goods
What are the 5 M’s?
Manpower, Money, Machine, Materials, Method
What are the Factors of Production?
Land, Labor, Capital, Entrepreneur
Plant size and the efficiency of its resources, functional relation between inputs and ouputs.
Shows maximum number of outputs can be produced with a given labor or capital
Resources are fixed in the short run
If the plant size and resources change in the long run so is the production capacity.
Production Function
Do not change as output increased or decreased
ex. offices, factories, machinery, computer systems
Fixed Factor Inputs
You can change to change output
ex. labor, raw materials used in production
Variable Factor Inputs
can increase output w/used of limited stock of inputs.
Very Short Run
Can increase input by using more variable such as hiring workers at least one factor of production is fixed
Short run
increase its scale of operations
no fixed factors, all variables
Long Run
there is a significant change in the technology
Very Long Run
output per unit of the variable inputs
Average Product or AP
What is the formula of AP?
AP=Q/I
AP= AVERAGE PRODUCT
Q= TOTAL PRODUCT/OUTPUT
I=RESOURCE INPUT
change in output because of additional input
MARGINAL PRODUCT
What is the formula of Marginal Product?
MP=∆Q/∆I
MP= MARGINAL PRODUCT
Q=TOTAL PRODUCT/OUTPUT
I=RESOURCE INPUT
∆= CHANGES IN
What are the 3 stages of production?
Increasing Returns
Diminishing Returns
Negative
adding more variable factors, will used fixed factors, increase production
Increasing Returns
another adding more variable factors, overall output starts to diminish
Diminishing Returns
excessively adding variable factors, negative return of production
Negative
- It is the used of variable factors against the limits of fixed factors
- size of resource should not go beyond its product-maximizing point
- plant capacity can only increase if there is a change in technology
The Law of Diminishing Returns
- illustrates more dynamically how plant sizes and combinations of resources determined different levels of resource efficiency.
ISOQUANT- ISOCOST MODEL
Combination of factors that can produce output
Less capital, more labor
ISOQUANT (what can be produced)
How much of one resource is given up using additional units
Amount of a good that a consumer is willing to consume compared to another good, as long as the new good is equally satisfying
Marginal Rate of Substitution
What is the formula for Marginal Rate Substitution?
MRS=∆capital/∆labor
∆=change in
infinite combinations of production resources with a given budget
ISOCOST
different levels of resource inputs and plant capacity
- infinite number of isoquants, infinite level of plant capacity
HIERARCHY OF ISOQUANT
different budget and cost levels
- infinite combinations of production resources with a given budget
HIERARCHY OF ISOCOST
equi marginal condition of consumer’s behavior
- favors use cheaper & more efficient inputs to maximize production
OPTIMUM RESEARCH COMBINATION
how much of 1 resource is used per unit of the other.
- optimum changes with relative resource price and efficiency.
RESOURCE MIX OR COMBINATION
power of inputs to produce
PRODUCTIVITY
productivity improvement and alter the optimum combination of resources
RELATIVE RESOURCE EFFICIENCY
measures how output changes relative to resource inputs in the long run
- variation or change in productivity that is outcome from the increase of all the input
Return to scale of productivity
equal, increasing input, increasing output
CONSTANT RETURN SCALE
Output is less, input increase
DECREASING RETURN SCALE
Output increase than input resources
Increasing return scale
What is the formula for Profit?
Cost-Revenue
value of money that has been used up in production
Cost
Machine, Land, Equipment
Real Assets
Form of Money
Money Assets
forgone benefit from an option not chosen
Opportunity Cost
cost that is incurred by virtue of using an asset instead of investing it
Imputed Cost
direct and indirect costs that are used in production
Production Cost
constant in any production level
Fixed Cost
change based on production level
Variable Costs
cost per unit of output
Average Costs
change in total cost because of additional unit produced
Marginal Cost
short-run cost functions since plant size and capacity are fixed
COST OUTPUT IN THE SHORT RUN
overall level of the Average Total Cost, plant size expands in the long run
Cost output in the long run
Variations of products or with lose substitutes
Product Differentiation
features, materials, design
Real Differences
Advertising, promoting
Imaginary Differences
change in total cost because of additional unit produced
Marginal Cost
surplus of income over the expenses
Profit
When Total Revenue is equal to Total cost
Break Even Point
difference between the net income and opportunity cost
Economic Profit
What is the formula of economic profit?
Total Revenue – Total Cost including implicit and explicit cost
measuring the GNP and GDP by adding the total gross value added of agriculture, manufacturing/industrial, and services.
Value Added Approach
What is the formula of Total Value Added?
Gross Value output - Value of Intermediate Consumption
What is the formula for Measures GDP?
Gross value added of agriculture + gross value added of industry + gross value added of services
What is the formula for Measures Growth Rate?
GDPyear2 - GDPyear1/GDPyear1 x 100
What is under the 2 sector model?
Household and businesses
What is under the 3 sector model?
Household and businesses
What is under the 4 sector model?
Household, Business, Government
What is under the 5 sector model
Household, Business
What is under the Overseas Sector?
Government, Financial Sector, Foreign Sector
market value of goods and services produced by a firm during one year
Value Output
measurement of country’s total trade
Net Exports
What is the formula for Net Exports?
Total Exports - Total Imports
Total Market Value of nation’s economy
Gross National Product
What is the formula of Gross National Product?
GNP = CONSUMPTION+ INVESTMENT + GOVERNMENT + NET EXPORT + NET FACTOR(GDP) + INCOME FROM ABROAD
Monetary value in local currency
Gross Domestic Product
What is the formula for Expenditure Approach?
GDP = CONSUMPTION+ INVESTMENT + GOVERNMENT + NET EXPORT
What is the formula for Income Approach?
GDP = Net domestic product of factor cost + Indirect Taxes + Subsidiaries + Depreciation
increase in economic productivity capacity
Economic Growth
economic model shows how money/income flows through the different economic sectors.
Phases of Circular Flow of Income
1st phase, firms produced outputs by taking help of factor services
Generation Phase
2nd phase, wages, rent, interest, and profit flow from firms to households
Distribution Phase
Last phase, income received by the factors of production that is spent on outputs produced
Disposition Phase
Money Received, salary, Wages
Income
studies the behavior of individuals and firms by making decisions
Microeconomics
studies the whole performance of the economy
Macroeconomics
What is the formula for Total Cost (TC)?
TC = TFC + TVC
What is the formula of TOTAL FIXED COST (TFC)?
TFC = TC - TVC
What is the formula of Total Variable Cost (TVC)?
TVC = TC - TFC
What is the formula for Average Total Cost (ATC)?
ATC = TC/Q
What is the formula for Average Fixed Cost (AFC)?
AFC = TFC/Q
What is the formula for Average Variable Cost (AVC)?
AVC = TVC/Q
What is the formula for Marginal Cost (MC)?
MC = TC2-TC1/Q2-Q1
not profitable production , should cut down some of its production
Marginal Cost > Marginal Revenue
profitable production, raise production
Marginal Cost < Marginal Revenue
the company should keep the production constant
Marginal Cost = Marginal Revenue
large number of buyers and sellers
- freedom of entry and exit from the industry - outputs are homogeneous This means that the quantity demanded is responsive to change in price
Perfect Competition (Perfectly elastic)
large number of buyers and sellers each would be to smaller a unit to affect the price of the product.
Demand Curve
the point where market demands will be equal to market supply
- In short run, demand affect equilibrium, in the long run, demand and supply affect equilibrium
Equilibrium of Perfect Competition
- single firm that is producing product -
there are no close substitutes
- 1 seller & large buyers -
no entry of new firms
Pure Monopoly (Inelastic)
its demand curve is industry curve the not perfectly elastic demand but negatively sloped
- if the seller in the pure monopoly wants to sell more, he must lower its price
DEMAND CURVE OF PURE MONOPOLY
Is the output at which total profits are maximized
Short Run Equilibrium
Total Revenue Curve is domed-shape
- Total Cost is arising
- TR - TC = PROFIT - TC = TR break even point is achieved
SHORT RUN PROFIT MAXIMIZING OUTPUT OF PURE MONOPOLY
in this, monopolist may incurlosses
- Losses will be minimized if the monopolist produces where short run MC = short run MR
SHORT RUN LOSS MINIMIZATION
entry of new firms is difficult and is often blocked
- monopolist adjust their long run output by
Means of plant size adjustments- plant is smaller than the most efficient size, most efficient size will be appropriate.
Long Run Equilibrium
charging different prices for the same commodity, the first market is inelastic demand, the second will be elastic demand
Price Discrimination
monopolies can’t just be left alone by the government as other industries in more competitive models are left alone.
Regulation of monopoly
large number of small firms - homogeneous products
- with close substitutes
MONOPOLISTIC COMPETITION (ELASTIC DEMAND CURVE)
developed the theory of monopolistic competition
Edward Chamberlin
Monopolistic output is less - Monopolistic has higher prices than perfect competition
Monopolistic vs Perfect Competition
Monopolistic output greater - Monopolistic has lower prices and lower profits
Monopolistic vs Pure Monopoly
small number of firms - with interdependence in each other
Oligopoly
produced identical products, change in price greater affects competitors
Pure Oligopoly
produced different products, change in price less affects competitors
Differentiated Oligopoly
formal org in the industry, have agreements
Perfect Collusion
informal arrangements, doesn’t have clear agreements
Imperfect Collusion
traditional feature of oligopoly - explain the rigidity of prices in oligopolistic market
- elastic in price increase - competitors match a price decrease
- downward sloping like demand curve
Kinked Demand Curve
