Module 5 Flashcards
What is technology
All the knowledge, expertise and tools involved in the production process.
What is technological change?
A change in the ability of a firm to produce a given level of output with a given level of inputs. Remember that technological change can be positive or negative. Technology can advance without actually causing “technological change”; the latter involves the adoption of the technology and use to produce more product, or same product with fewer inputs.
What is the average product of labour?
Total product quantity / total units of labour
What is the marginal product of labour?
how much more product was made by adding that additional unit of labour
Define “short run”
Prof: At least one of the firm’s inputs is fixed.
Textbook: both technology and physical footprint are fixed.
Define “long run”
The period of time within which the firm can vary all inputs including footprint and technology.
What are explicit costs?
Explicitly accumulated costs - spending on things, aka “accounting costs”
What are implicit costs?
- depreciation
- opportunity costs
What do the graphs look like for Total Costs and Average Total Costs?
How do we find the marginal cost per unit?
= Marginal Total Cost / Marginal # of units produced
What is the production function?
Relationship b/w inputs and max output. Technology.
What is the Law of Diminishing Marginal Returns?
- Short run only
- Adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of that variable input to decline (i.e. labour and pizza ovens)
Where does the Marginal Product of Labour equal the Average Product of Labour?
These two curves intersect where APL is at it’s highest.
When Marginal Product of Labour is greater than Average Product of Labour, APL is_______.
When MPL > APL, APL is increasing.
When Marginal Product of Labour is smaller than Average Product of Labour, APL is ___________.
When MPL < APL, APL is decreasing.
How do we calculate Marginal Cost?
MC = change in TC / change in TQ
When Marginal Product is rising, marginal cost is ______.
When Marginal Product is rising, marginal cost is falling.
As output increases, Average Variable Cost approaches _______.
As output increases, AVC approaches Average Total Cost.
Where does Marginal Cost intersect Average Variable Cost & Average Total Cost?
MC intersects AVC & ATC at their lowest points.
What is C4?
C4 is the Marginal Cost curve.
What is C3
C3 is the Average Total Cost
What is C2
C2 is the Average Variable Cost
What is C1?
C1 is the Average Fixed Cost
Are there any fixed costs in the long run?
No.
In the long run, what does Total Cost equal?
In the long run, Total Cost = Variable Cost.
In the long run, what does Average Total Cost equal?
In the long run, ATC = AVC.
How do we construct the long run average cost curve?
Long Run Average Cost curve is constructed by joining all the short-run Average Total Cost curves.
What part of the long run Average Total Cost curve shows movement towards economies of scale?
The first part, where the AC curve is trending down.
What is Minimum Efficient Scale and where do we find it?
Minimum Efficient Scale is the level of output at which all economies of scale are exhausted.
Why do economies of scale exist?
- Technology: ^Q w/ smaller proportional increase in at least one input
- Specialization saves labour
- Buying in bulk = bargaining power over suppliers
- Borrowing in bulk = lower interest rates
What is constant returns to scale and where do we find it?
This is the range over which scale doesn’t change Average Cost. We find it at the bottom of the long run Average Cost curve.
What is diseconomies of scale?
- Where the LRAC curve slopes upwards.
- Firm is too large, or plant is too large, and it becomes difficult to coordinate operations.
- Applies only to the long run.
What is the formula for Marginal Cost
= Marginal Total Cost / Marginal # units produced. ***if doing an excel table ensure first row starts with just a single unit being produced.
