Module 6 - Production Flashcards

1
Q

Why do we need to calculate average costs?

A

The numbers are more manageable and allow us to compare them directly with price and determine profitability.

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2
Q

Why do we break the ATC into it’s two components: AFC and AVC? (Two reasons)

A
  1. Examining AFC alone helps us see that it is an ever-decreasing function of output. (The more output a firm produces, the more it spreads out it’s total fixed cost)
  2. AVC will be used later to determine whether a firm that is losing money should continue to operate or it should shut down in the short run.
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3
Q

In deciding on how much output should be produced to maximize profits, firms need two pieces of information:

  1. ___
  2. ___
A
  1. Marginal cost (cost associated with producing an additional unit of output)
  2. Marginal revenue (extra benefit associated with producing that unit of output)
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4
Q

If MC > ATC, then ATC ___.

A

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5
Q

If MC > AVC, then AVC ___.

A

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6
Q

If MC < ATC, then ATC ___.

A

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7
Q

If MC < AVC, then AVC ___.

A

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8
Q

If MC = ATC, then ATC ___.

A

Remains unchanged

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9
Q

If MC = AVC, then AVC ___.

A

Remains unchanged

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10
Q

___ is the cost associated with the use of resources; the sum of explicit and implicit costs.

A

Economic costs

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11
Q

___ are monetary payments made by individuals, firms, and governments for the use of land, labor, capital, and entrepreneurial ability owned by others; also called accounting costs.

A

Explicit costs (seen)

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12
Q

___ is the opportunity costs of using owned resources; costs which no monetary payment is explicitly made.

A

Implicit (unseen)

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13
Q

Accounting profit is ___.

A

TR - explicit costs

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14
Q

Economic profit is ___.

A

TR - economic costs

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15
Q

Economic costs are ___.

A

Explicit costs - implicit costs

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16
Q

Total revenue is ___.

A

Price (Qt)

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17
Q

Zero accounting profit means ___. When Implicit costs are taken into account then ___.

A

You’re making enough to cover all monetary expenses.

Your economic profit is negative, which isn’t good

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18
Q

Zero economic profit means ___.

A

Your revenues are covering all explicit and implicit costs - you’re doing just as well as you could in your next-best option.

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19
Q

___ is the time period in which at least one input of production is fixed, but other inputs can be changed.

A

Short-run

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20
Q

___ is the total amount of output produced when given the amount of resources.

A

Total product (TP)

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21
Q

___ is the additional output produced as a result of utilizing one more unit of variable resource.

A

Marginal product (MP)

22
Q

___ is the average amount of output produced per unit of a resource employed.

A

Average product (AP)

23
Q

___ is a characteristic of production whereby the marginal product of the next unit of variable resource utilized is greater than that of the previous variable resource.

I.e., not enough employees resulting in overworked employees

A

Increasing marginal returns

24
Q

___ is a characteristic of production whereby the marginal product of the next unit of a variable resource utilized is less than that of the previous variable resource.

I.e., too many employees resulting in less productive hours

A

Diminishing marginal returns

25
\_\_\_ are costs that do not allow for change with the amount of output produced.
Fixed costs
26
\_\_\_ are costs that change with the amount of output produced, increasing as production increases and decreases as production decreases.
Variable costs
27
\_\_\_ is the sum of fixed and variable costs of production.
Total costs
28
On a graph, where is TC, TVC, and TFC?
A - TC B - TVC C - TFC
29
\_\_\_ is fixed cost per unit.
Average fixed cost (AFC)
30
\_\_\_ is variable cost per unit.
Average variable cost (AVC)
31
\_\_\_ is the total cost per unit
Average total cost (ATC)
32
On a graph, where is ATC, AVC, and AFC?
A - ATC B - AVC C - AFC
33
\_\_\_ is the additional cost associated with one more unit of an activity; difference between P2 - P1.
Marginal cost (MC)
34
The average value ___ when the marginal value rises above it.
35
The average value ___ when the marginal value falls below it.
36
The average value ___ when the marginal value is equal to it.
Stays unchanged
37
\_\_\_ is a curve showing the ATC for different levels of output when at least one input of production is fixed, typically plant capacity.
Short-run ATC (avg total cost)
38
\_\_\_ is a curve showing the lowest ATC possible for any given level of output when all inputs of production are variable.
Long-run ATC (avg total cost)
39
\_\_\_ is a condition in which the long-run ATC of production decreases as production increases.
Economies of scale
40
**Economies of scale** can result form a variety of factors including productivity gains from ___ and ___ as firms purchase larger quantities and benefit from \_\_\_.
More specialized labor Lower costs of inputs Bulk pricing
41
What does the colored portion of the graph represent?
Economies of Scale Output increases as ATC decreases Benefit from bulk pricing and larger Q purchases
42
\_\_\_ is a condition in which the long-run ATC of production increases as production increases.
Diseconomies of scale
43
What does the colored portion of the graph represent?
Constant returns to scale Additional output doesn't affect LRATC
44
**Constant returns to scale** occur because the firm is ___ or \_\_\_; they reach minimum level of output necessary to achieve the lowest possible LRATC.
Unable to benefit from further efficiency gains Lower input costs
45
\_\_\_ is a condition in which the long-run ATC of production remains constant as production increases.
Constant returns to scale
46
What does the colored portion of the graph represent?
Diseconomies of scale LRATC (long-run average total cost) of production increases as output increases Lower levels of efficiency
47
**Diseconomies of scale** shows as firms continue to grow, it becomes more difficult to manage; ___ and ___ contribute to lower levels of efficiency -
Increasing costs Complexity
48
\_\_\_ is the lowest level of output at which the long-run ATC is minimized.
Minimum efficient scale
49
What does the arrow point to on the graph?
**Minimum efficiency scale** is the lowest level of output at which the long-run ATC is minimized.
50
\_\_\_ refers to the lowest level of output at which the LRATC is minmized.
Minimum-efficiency sacle
51
The shape of the marginal cost curve is dependent upon \_\_\_.
Law of diminishing marginal returns