firms cost of production

Question 1

The difference between technology and technological change is that:

Answer 1

technology refers to the processes used by a firm to transform inputs into output, while technological change is a change in a firm’s ability to produce a given level of output with a given quantity of inputs.

Question 2

A firm increased its production and sales because the firm’s manager rearranged the layout of his factory floor. This is an example of:

Answer 2

positive technological change.

Question 3

What determines a firms cost of production ?

Answer 3

1. technology used to produce the output
2. productivity of its workers
3. the cost of raw materials used in production

Question 4

give examples of sources of technological advancement for a producer?

Answer 4

1. better trained workers
2. more efficient physical capital
3. higher skill level of managers

Question 5

A firm has successfully adopted a positive technological change when:

Answer 5

it can produce more output using the same inputs.

Question 6

what is meant by the economic short run?

Answer 6

a firm’s technology and the size of its place of operations are fixed

Question 7

what is meant by the economic long run?

Answer 7

the firm is able to adopt new technology and increase or decrease the size of its physical plant

Question 8

what are total costs?

Answer 8

the sum of all inputs used in production

Question 9

what are variable costs

Answer 9

costs that change as output changes

Question 10

what are fixed costs?

Answer 10

costs that remain constant as output changes

Question 11

what are explicit costs?

Answer 11

monetary costs

Question 12

what are implicit costs

Answer 12

non-monetary opportunity costs

Question 13

what is the production function ?

Answer 13

The relationship between the inputs employed by the firm and the maximum output it can produce with those inputs

Question 14

what does the short-run production function hold constant?

Answer 14

fixed inputs

Question 15

the additional output produced by a firm as a result of hiring one or more worker is____

Answer 15

the marginal product of labour

Question 16

How do specialisation and division of labour typically affect the marginal product of labour?

Answer 16

Specialisation and division of labour cause the marginal product of labour to rise for the first few workers hired. Eventually, the law of diminishing returns causes the marginal product of labour to decline

Question 17

what is the average product of labour?

Answer 17

The average product of labour is the total amount of output produced by a firm divided by the quantity of workers hired.

Question 18

When the marginal product of labour is greater than the average product of labour, the average product of labour _______

Answer 18

increases

Question 19

When the marginal product of labour is less than the average product of labour, the average product of labour __________

Answer 19

decreases

Question 20

the law of diminishing returns states that …..

Answer 20

at some point, adding more of a variable input, such as labour, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline.

Question 21

what is the marginal cost of production?

Answer 21

the increase in total cost resulting from producing another unit of output

Question 22

why is the marginal cost curve U-shaped?

Answer 22

when the marginal product of labour is rising, the marginal cost of output will be falling. When the marginal product of labour is falling, the marginal cost of output will be rising

Question 23

when marginal cost is less than average total cost _______

Answer 23

average total cost falls

Question 24

When marginal cost is greater than average total cost _______

Answer 24

average total cost rises

Question 25

Explain why the marginal cost curve intersects the average variable cost curve at the level of output where average variable cost is at a minimum.

Answer 25

the marginal cost is the next unit produced, therefore when the next unit costs less than the AVC it pulls the average down, similarly when the price is above the AVC it pulls the AVC up

Question 26

the curve which shows the lowest cost at which a firm is able to produce a given level of output in the long-run is called….

Answer 26

the long-run average cost curve

Question 27

what affect do economies of scale have on the long-run average cost curve?

Answer 27

the long-run average cost curve falls as output expands

Question 28

What is minimum efficient scale?

Answer 28

The level of output at which all economies of scale have been exhausted.

the firms will lose money if it remains in business

Question 29

What are economies of scale?

Answer 29

economies of scale Exist when a firm’s long-run average costs fall as it increases its scale of production and the quantity of output it produces

Question 30

What are diseconomies of scale?

Answer 30

diseconomies of scale exist when a firm’s long-run average costs rise as it increases its scale of production and the quantity of output it produces.

Question 31

Why can short-run average total cost never be less than long-run average cost for a given level of output?

Answer 31

there are no fixed costs in the long run

Question 32

What is the main reason that firms may eventually encounter diseconomies of scale as they keep increasing the size of their store or factory?

Answer 32

As the organisational structure of the firm becomes more complex, the level of difficulty and cost of monitoring and maintaining control may increase. Industrial disputes tend to occur more often in large organisations than in small businesses, which can also lead to rising costs

Question 33

What is likely to happen in the long run to firms that do not reach minimum efficient scale?

Answer 33

marginal cost begins to rise, thus causing average cost to increase. eventually the business will become less profitable.

Question 34

What are four reasons firms may experience economies of scale?

Answer 34

reasons:
1. technology makes it possible to increase production with a smaller proportional increase in inputs
2. both workers and managers can become more specialised, enabling them to be more productive as output increases
3. firms may be able to purchase inputs at lower costs than smaller competitors
4. it may be able to borrow money more cheaply