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Managerial Economics > Production and Production Costs > Flashcards

Production and Production Costs Flashcards

1
Q

Inputs whose quantities can be readily changed in response to changes in market conditions.

A

Variable Inputs or Costs

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2
Q

What is a typical example of a variable input?

A

Labor

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3
Q

Inputs whose quantities can’t be readily changed in response to market conditions.

A

Fixed Inputs or Costs

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4
Q

What is a typical example of a fixed input?

A

Factory

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5
Q

Happens when a firm produces the maximum output possible for a given combination of inputs and existing technology.

A

Technical Efficiency

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6
Q

It is when every input is being utilized to the fullest extent possible, and there is no other way to get more output without using more of at least one input.

A

Technical Efficiency

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7
Q

Achieved when the firm produces its chosen level of output at the lowest possible total cost.

A

Economic Efficiency

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8
Q

It is the focus of managers because profit cannot be maximized unless the firm’s output is produced at the lowest possible cost.

A

Economic Efficiency

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9
Q

Refers to the different input combinations used to efficiently produce a specified output.

A

Isoquants

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10
Q

This refers to technical efficiency, or the least-cost production of a target level of output.

A

Isoquants

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11
Q

This is similar to an indifference curve, since the points that lie on the same graph are inputs that, when combined, produce the same level of output.

A

Isoquants

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12
Q

What do firms use so they could utilize various combinations of inputs to produce the same level of output.

A

Multiple variables of production

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13
Q

What isoquant is associated with higher levels of output?

A

A higher isoquant

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14
Q

The rate at which a producer can substitute between two inputs and maintain the same level of inputs.

MRTS

A

Marginal Rate of Technical Substitution

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15
Q

It is the absolute value of the slope of the isoquant and is the ratio of the marginal products.

A

Marginal Rate of Technical Substitution

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16
Q

It states that as less of one input is used, increasing amounts of another input must be employed to produce the same level of output.

A

Law of Diminishing Marginal Substitution

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17
Q

It shows all the different costs that can arise from the different levels of inputs.

A

Isocosts

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18
Q

What happens to the slope of isocost line when there is a change in the input costs?

A

It will change.

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19
Q

What happens to the firm and the line if the price of one input falls?

A

Firms could buy more of that input.
Line will shift away from the origin.

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20
Q

The slope depends on the prices of inputs and the amount of money which the firm spends.

A

Isocosts

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21
Q

How can firms maximize their profits?

A
  1. By maximizing the level of output for a given cost.
  2. By minimizing the cost of producing a given output.
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22
Q

What happens to the cost when the slope of the isoquant (MRTS) is equal to the slope of the isocost line (cost of production)?

A

It will be minimal.

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23
Q

What happens when the firms produce lower than the cost-minimizing input mix?

A

They could produce more with the same amount of inputs.

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24
Q

What happens when the firms produce more than the cost-minimizing input mix?

A

The cost of production is too high.

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25
Q

The sum of variable and fixed costs.

A

Total Costs

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26
Q

Its curve slope upward.

A

Total Costs

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27
Q

Why does the total cost curve slope upward?

A

Because increasing output increases total costs.

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28
Q

These are costs per unit of output.

A

Average Costs

29
Q

They indicate how efficiently scarce resources are being used (lower ATC means less cost per good).

A

Average Costs

30
Q

It can be computed by adding the average variable costs and the average fixed costs.

A

Average Costs

31
Q

Obtained using the equation TFC/Q

A

Average Fixed Costs

32
Q

Obtained using the equation TVC/Q

A

Average Variable Costs

33
Q

Obtained using the equation TC/Q

A

Average Total Costs

34
Q

It is high when there are relatively low levels of output.

A

Average Fixed Costs

35
Q

In a graph, it first declines, then rises.

A

Average Variable Costs

36
Q

It has the same general structure as the AVC, in that it first declines, then increases.

A

Average Total Costs

37
Q

Its minimum is attained at a larger quantity than at which the AVC attains its minimum.

A

Average Total Costs

38
Q

It’s the change in total cost when production increases by one unit.

A

Marginal Cost

39
Q

It is derived solely from the variable costs, and not the fixed costs.

A

Marginal Cost

40
Q

What happens to the marginal costs when a firm incurs costs when making goods and services and can be covered by additional products sold?

A

Decreasing/Falling

41
Q

What signifies the point where the marginal costs neither decrease nor increase?

A

It signifies the highest quantity a firm can produce while keeping costs at a minimum.

42
Q

What happens to the marginal costs when the firm produces an additional unit beyond a certain point?

A

Increase

43
Q

What is the lowest price that a firm is prepared to supply?

A

The price that just covers marginal cost.

44
Q

What happens to short-run MC when ATC is at minimum?

A

It equals ATC.

45
Q

What happens to short-run MC when AVC is at minimum?

A

It equals AVC.

46
Q

What happens to the average cost when MC is below the ATC and AVC curves?

A

Decline

47
Q

What happens to the average cost when MC is above the ATC and AVC curves?

A

Rises

48
Q

Known as the envelope curve and is drawn on the assumption that there is an infinite number of production plants.

LRAC

A

Long Run Average Cost Curve

49
Q

It defines the minimum average cost of producing alternative levels of output, allowing for optimal selection of both fixed and variable factors of production.

A

Long Run Average Cost Curve

50
Q

Why is LRAC known as the envelope curve?

A

Because it’s the lower portion of all short-run cost curves.

51
Q

What is the firm experiencing when the LRAC is falling when output is increasing?

A

Economies of Scale

52
Q

They are cost advantages from expanding the scale of production in the long run.

A

Economies of Scale

53
Q

It reduces average costs over a range of outputs.

A

Economies of Scale

54
Q

What happens to the economies of scale when the long run average total cost curve is declining?

A

Being exploited

55
Q

What do you call when after a point, further increases in production will lead to an increase in the average costs?

A

Diseconomies of Scale

56
Q

They are seen when LRAC is rising.

A

Diseconomies of Scale

57
Q

What is the condition when the technology in an industry allows a firm to produce different levels of output at the same minimum average cost?

A

Constant Returns to Scale

58
Q

Short Run or Long Run

Capital assets are fixed

A

Short Run

59
Q

Short Run or Long Run

Amount of inputs is the only available business decision

A

Short Run

60
Q

Short Run or Long Run

Fixed costs are already paid and unrecoverable

A

Short Run

61
Q

Short Run or Long Run

Number of firms in the market is fixed. Firms have already chosen what industry they will enter and the scale of the technology of production.

A

Short Run

62
Q

Short Run or Long Run

Firms will produce if market price covers VC

A

Short Run

63
Q

Short Run or Long Run

Profits can be positive, negative, or zero

A

Short Run

64
Q

Short Run or Long Run

Not defined as a specific period of time

A

Long Run

65
Q

Short Run or Long Run

It is the time horizon needed for a producer to have flexibility over all relevant production decisions, such as the number of workers or production processes.

A

Long Run

66
Q

Short Run or Long Run

Fixed costs are not yet decided and paid. They are not truly “fixed”.

A

Long Run

67
Q

Short Run or Long Run

Firms will enter if market price is high to result in a positive economic profit and will exit if market price is high to result in a positive economic profit

A

Long Run

68
Q

Short Run or Long Run

If firms have the same costs, profits will be zero in a competitive market.

A

Long Run

69
Q

Short Run or Long Run

Firms with zero profits have lower costs and can maintain positive economic profit.

A

Long Run

Managerial Economics (15 decks)

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