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BSNS113 > Lecture 22: Finishing Cost curves and starting Theory of the Firm > Flashcards

Lecture 22: Finishing Cost curves and starting Theory of the Firm Flashcards

1
Q

The production function can be used to determine what?

A

the costs of production

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2
Q

The total cost curve shows the relationship between what?

A

the quantity a firm can produce and its total costs

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3
Q

Why does total cost get steeper as the quantity of output increases because of what?

A

diminishing marginal product

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4
Q

Define fixed cost

A

cost that does not vary with the quantity of output produced

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5
Q

Define variable costs

A

costs that varies with the quantity of output produced

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6
Q

Does fixed cost change in the short run?

A

no

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7
Q

Total cost (TC) =

A

fixed cost (TFC) + variable cost (TVC)

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8
Q

Define marginal cost

A

The increase in total cost that arises from an extra nit of production

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9
Q

When output is zero, there is no __________ cost which means that __________ cost equals what?

A

variable
total
the cost to produce zero units

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10
Q

How can we calculate marginal cost?

A

change in total cost/change in output

MC = ΔTC/ΔQ

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11
Q

What is average variable cost equal to?

A

total variable cost/quantity

TVC/Q

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12
Q

What is average fixed cost equal to?

A

total fixed cost/quantity

TFC/Q

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13
Q

What is average total cost equal to?

A

total cost/quantity

TC/Q

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14
Q

Is marginal cost always increaing?

A

no, often in the beginning it is not

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15
Q

Whaat does it mean if marginal cost is increasing straight away?

A

it means that law of diminishing marginal returns applies straight away

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16
Q

The marginal cost curve always crosses the average cost curve where?

A

at their lowest point

17
Q

What are three important properties of cost curves that typically hold true?

A
  • marginal cost eventually rises with the quantity of output
  • the ATC curve is U shaped
  • MC crosses the ATC at it’s minimum point
  • MC crosses the AVC at it’s minimum
18
Q

One of the properties of cost curves is that MC rises with the quantity of output. Why is this?

A

due to diminishing marginal profit

19
Q

Explain why the ATC curve is U shaped

A
  • at very low levels of output, ATC is high because TFC is spread over only a few units
  • AC declines as output increases because AFC decreases
  • AC starts rising because AVC rises substantially
  • the quantity that minimises the AC is called the efficient scale
20
Q

What is the quantity called that minimises the AC?

A

efficient scale

21
Q

MC crosses the AC at the efficient scale (minimum AC). This means whenever MC is less than AC, AC must be

A

falling

22
Q

MC crosses the AC at the efficient scale (minimum AC). This means whenever MC is more than AC, AC must be

A

rising

23
Q

Efficient scale is the quantity of output that minimises AC, hence, at the efficient scale, AC is what?

A

neither rising or falling

24
Q

Define economies of scale

A

long-run average total cost falls as the quantity of output increases

25
Q

Define diseconomies of scale

A

long run average total cost rises as the quantity of output increases

26
Q

Define constant returns to scale

A

Long-run average total cost stays the same as the quantity of output changes

27
Q

What are 5 features of competitive markets?

A
  1. there are many buyers and sellers in the market
  2. the goods offered by the various sellers are largely the same
  3. there is perfect information
  4. they are price takers
  5. firms can freely enter or exit the market (in the long run)
28
Q

What does is mean when there are price takers in a competitive market?

A

buyers and sellers have no individual influence over the price

29
Q

What sort of demand curve does a firm in a competitive market face? Why is this?

A

the demand curve is perfectly elastic (ie. horizontal demand curve)

30
Q

Define average revenue

A

revenue a firm receives for the typical unit sold

AR = TR/Q

31
Q

Define marginal revenue

A

extra revenue a firm receives for an extra unit sold

MR = ΔTR/ΔQ

32
Q

What does is it mean when perfect competitions have perfect information?

A

businesses share knowledge so there is no intellectual property

BSNS113 (14 decks)

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