Module 5 Productions and Costs Flashcards
What is a firm?
An organization producing outputs
What do private firms aim to maximize?
Profits
What are the factors of production?
Capital, Labor, Natural Resources, Materials
What does Q(K,L) represent?
Output as function of capital and labour
What does APL stand for?
Average Product of Labour
What is Increasing Returns To Scale (IRS)?
Output increases more than inputs.
What does ATC stand for?
Average Total Cost
What is the shape of the Average Total Cost (AC) curve?
Typically U-shaped
When are profits positive?
Price > Average cost
What are economies of scale?
Cost per unit decreases with output
What does the LRAC curve indicate for firms?
Lowest unit costs at R
What is the difference between a large and small grocery store?
Variety of products
What is production?
Combining inputs to produce outputs
What does economic profit include?
Explicit and implicit costs
What is the Law of Diminishing Marginal Productivity?
Additional output declines with more labour
What is the production function in the long run?
Q = f [L, K]
What is Constant Returns To Scale (CRS)?
Output increases exactly as inputs.
What is the formula for total cost?
COST = FIXED COSTS + VARIABLE COSTS
What does AVC stand for?
Average Variable Cost
How is Marginal Cost (MC) generally characterized?
Upward-sloping
What is the formula for profit?
Profit = Revenue - Costs
How can farm households diversify income?
Off-farm income
What is a consequence of farmland consolidation?
Rural depopulation
What affects production function?
Capital (K) and Labour (L)
How does technology affect the production function?
Raises output for same inputs
What does AFC stand for?
Average Fixed Cost
What happens when Price equals average cost?
Profits are zero
What happens to unit costs as production increases under Diseconomies of Scale?
Unit costs rise
Which types of businesses have a lot of size variation?
Grocery stores, retail stores, farms
What does MC stand for?
Marginal Cost
What does AC equal?
AFC + AVC
What is the formula for Total Revenue?
Total Revenue = P q
What are fixed inputs?
Inputs not easily changed
What is Marginal Product (MP)?
Additional output from one more unit of labour
How is APL measured?
Q/L
What does it mean if MPL is above APL?
APL rises
What happens to APL if MPL is below it?
APL falls
What are variable costs?
Costs of variable inputs
What do fixed costs comprise?
Costs of fixed inputs
Where does the Average Variable Cost (AVC) lie relative to AC?
Below AC curve
What is the typical shape of the Average Variable Cost (AVC) curve?
U-shaped or upward-sloping
What does the LRAC curve show?
Lowest possible average cost
What are the types of firms?
For-profit, not-for-profit, government
What are variable inputs?
Inputs easily changed
As L rises, what happens to Q and ?Q?
Q rises, ?Q falls
What are fixed costs?
Costs that do not vary
How is Average Total Cost calculated?
Total cost / quantity
What is the effect of doubling all inputs under IRS?
More than double outputs
What is Diseconomies of Scale?
Rising costs with increased output
What happens when a firm produces at a different quantity from the LRAC curve’s minimum?
Higher unit costs
Why would market structure change over time?
Changes in technology, crop varieties, transportation infrastructure, etc.
Why would firm size change?
Efficient scale changes due to technology and other factors
What is ‘Social License’ in farming?
Perception of family farms
How is Average Variable Cost calculated?
Variable cost / quantity
What does short-run average cost (SRAC) indicate?
Total of average fixed and variable costs
What results from a change in technology?
Change in production function
How is Average Fixed Cost calculated?
Fixed cost / quantity
