Man Ec: #4

Question 1

The theory of production is concerned with the way in which ________ _________ are employed to produce a firms products.

Answer 1

physical resources 65

Question 2

What type of function describes the relationship between the inputs to production and the resulting outputs?

Answer 2

a production function

Question 3

What is a production function? What can it tell you?

Answer 3

It is a descriptive statement that relates inputs to outputs. It can tell you things like the maximum output that can be produced from a certain number of inputs.

Question 4

What factor determines the actual production function?

Answer 4

where technology is at

Question 5

The production function describes what is feasible for a firm when operating _______.

Answer 5

efficiently. This describes the most efficient ways to do things to get the most out of it.

Question 6

I love Heidi

Answer 6

Thanks for helping me study.

Question 7

Put the following into a production function. What does it mean? Q=output K=capital L=labor

Answer 7

Q=f(K,L) It means that the quantity of output depends on the quantity of the two inputs K & L

Question 8

What does the short term refer to?

Answer 8

a period of time in which one or more factors of production cannot be changed. for example the capital in an automobile plant cannot be changed in the short run since it takes years to build a new plant.

Question 9

Factors that cant be changed in the short run (such as the automobile plant) are called what?

Answer 9

fixed factors

Question 10

The output of variable and fixed inputs will be the total product. In other words what is total product?

Answer 10

This is the concept used to describe the relationship between outputs and variations in only one input in a production function. 66

Question 11

What is the marginal product? How is it calculated?

Answer 11

-It is the change in total product resulting from the use of one more unit of the variable factor. -Marginal Product= Change in Output/ Change in Input 67

Question 12

How do you calculate average product?

Answer 12

Average Product= total product / # of units of input

Question 13

Marginal Product is like a magnet that pulls average product either up or down depending on if MP is greater or less than AP

Answer 13

As well if TP is positive then MP is positive https://www.youtube.com/watch?v=0Wnp4wQkR0o

Question 14

Total product is increasing most rapidly when marginal product is ________.

Answer 14

increasing

Question 15

When marginal product is greater than average product of labor it pulls average labor ________.

Answer 15

up

Question 16

What does the law of diminishing returns state?

Answer 16

That at some point one more unit of variable cost will add less to total product then the previous.

Question 17

As more workers are added to the mix they can split up tasks into separate jobs with people specializing in one job. What is this called?

Answer 17

division of labor

Question 18

Costs that are forgone by not putting a firms resources to its highest use, for example not renting out a house but living in it instead, is called…

Answer 18

opportunity cost 69

Question 19

what is the “opportunity cost of risk”?

Answer 19

This is the rate of return that one could earn by investing in a different project with similar risk.

Question 20

What type of cost does not change with output? Which does?

Answer 20

Fixed doesn’t Variable does.

Question 21

What is average total cost? What are the equations for average total cost average fixed cost average variable cost

Answer 21

the total cost of production at any level of output divided by the number of units produced. ATC=TC/Q AFC=FC/Q AVC=VC/Q

Question 22

What is marginal cost? What is the equation?

Answer 22

the increase in total cost from producing one more unit MC=Change in VC / Change in Q

Question 23

What are the short run costs?

Answer 23

Average total cost Average fixed cost Average variable cost Marginal Cost

Question 24

Returns to scale

Answer 24

returns to scale, in economics, the quantitative change in output of a firm or industry resulting from a proportionate increase in all inputs. If the quantity of output rises by a greater proportion—e.g., if output increases by 2.5 times in response to a doubling of all inputs—the production process is said to exhibit increasing returns to scale. Such economies of scale may occur because greater efficiency is obtained as the firm moves from small- to large-scale operations. Decreasing returns to scale occur if the production process becomes less efficient as production is expanded, as when a firm becomes too large to be managed effectively as a single unit.

Question 25

True or false

Q TC VC AFC AVC MC

100 560 60

200 4

300 4

400 5.75

1) Total Fixed cost for 100 units is $400
2) Total Fixed Cost for 300 units is $400
3) Total cost for 200 units is $960
4) Average fixed cost for 100 units is $5
5) Average fixed cost for 300 units is $5

A) Average fixed cost for 300 units is 1.66

B) At Q=400, TC=2500

C)Marginal Cost for the 300th unit is 740

D) Not that we have TC foa ll outputs, we can find VC foa ll outputs, simply deducting $500 of FC from each TC. For all outputs we have VC=60, 460, 1200, 2300.

E) The lowest AFC is 1.66. After 300 units, AFC increases again

F) ATC for Q=200, 300, and 400 are respectively 4.80, 5.66, and 7.00

G) At 300 units of output, variable cost equals 1200. When we add 500 (FC), TC equals 1700.

H) AVC for the four respective outputs is .6, 2, 4, 5.5

Answer 25

1) false
2) false
3) true
4) true
5) false

A) True

TFC/300 = 500/300 = $1.66

B) False

Since at Q = 400, ATC is given as 7.00, we can calculate TC/400 = 7.00, or TC = 7.00(400) = $2,800.

C) False

Going from 200 to 300 units of output, ATC and AVC are both $740, but these must both be divided by the change in Q, so $7.40.

D) True

It is true that TC – FC = VC, and the total costs reported are also true, so this is a true statement.

E) False

It is true that TC – FC = VC, and the total costs reported are also true, so this is a true statement.

F)True

These correct numbers are found simply by dividing each of the respective total costs by the related output.

G) True

We found variable cost because VC/Q = AVC, and AVC was given as 4.00. Thus, VC/300 = $4.00, so VC = $1,200.

H) False

For Q = 200, we have 460/200 = $2.30, and for Q = 400 we have 2300/400 = $5.75. The four values are thus .60, 2.30, 4.00 and 5.75.