producers in the short run

Question 1

What’s a FIRM: Organizations of firms

Answer 1

• A single proprietorship
• An ordinary partnership
• The limited partnership
• A corporation
• A state-owned enterprise
• A non-profit organization

Question 2

What is a multinational enterprise?

Answer 2

Firms that have operations in more than one country

Question 3

What are costs?

Answer 3

Explicit costs: input costs that require an outlay of money by the firm
Implicit costs: don’t require an outlay of money by the firm

Question 4

Profit calculations

Answer 4

accounting profit = total revenue - total explicit costs

economic profit = total revenue - total economic costs

*total economic costs = explicit costs + implicit costs

Question 5

What does the production function show?

Answer 5

The relationship between the quantity of inputs used to produce a good and the quantity of output of that good: Q = f(L,K)

Question 6

What is an input to production?

Answer 6

factors of production: land (T), physical capital (K), labour (L), entrepreneurship

Question 7

What is an intermediate input?

Answer 7

any input that’s used up in the production process (i.e. flour to make bread)

Question 8

what was the purpose of the apple picking exercise?

Answer 8

to look at the total cost product curve:

• output quantity of good (apples) = Q or TP
• marginal product of labour (how many apples they picked compared to the previous number of workers)
• cost of equipment
• cost of workers
• total cost of inputs (cost of factory + cost of workers)
• all new values for every column are as a result of additional workers

Question 9

equations we get from the apple picking exercise

Answer 9

• Total Product (TP) = output = production = Q
• Average Product (AP) = TP/L (L = # of workers)
• Marginal Product (MP) of labour = change in TP / change in L

Question 10

What is the law of diminishing returns?

Answer 10

Total product decreases, marginal product falls below average product

Question 11

Measures of cost: TC = FC + VC

Answer 11

• Fixed cost (FC): costs that don’t vary with the quantity of output produced (per unit cost) (i.e. rent)
• Variable cost (VC): costs that vary with the quantity of output produced (i.e. wages, electricity)

Question 12

ATC, AFC, AVC, and MC Curves

Answer 12

• Marginal cost increases with the quantity of output produced
• Average total cost curve is U-shaped
• Marginal cost curve crosses the ATC curve at its minimum

Question 13

Importance of MC

Answer 13

If the cost of additional cups of tea (MC) is less than the revenue she would get form selling it, then she’ll increase profits if she produces more

Question 14

Short run def

Answer 14

A period of time sufficiently short that we have some fixed factors of production (some inputs can’t be changed)

Question 15

Long run def

Answer 15

• A period of time of sufficient length that all the firm’s factors of production are variable (i.e. no fixed costs)
• The very long run is the length of time over which all the firm’s factors of production and its tech can be varied

Question 16

Shift in short run cost curves

Answer 16

• An increase in the price of a variable factor (something like wages) shifts the firms TC and MC curves upwards
• An increase in the price of a fixed factor (like land) increases the firm’s total fixed costs, but its variable costs are unchanged - the ATC curve shifts upward but the MC curve doesn’t change