Production Costs, Markets

Question 1

Production Measures
Total Product

B5-40

Answer 1

–total amount of output produced

TP = Q

Question 2

Production Measures
Marginal Product

B5-40

Answer 2

–change in total product resulting from one-unit increase in qty of an input
MP X = change TP/ Change X

Question 3

Production Measures
Average Product

B5-40

Answer 3

–total product divided by quantity of input

APL = TP/X

Question 4

Law of Diminishing Returns
definition

B5-40

Answer 4

when more and more units of an input are combined w/ fixed amount of other inputs, output increases but at a diminishing rate

Question 5

Cost Functions
Avg. Fixed Cost

B5-40

Answer 5

AFC = FC/Q

–curve dec continually

Question 6

Cost Functions
Avg. Variable Cost

B5-40

Answer 6

AVC = VC/Q

Question 7

Cost Functions
Avg. Total Cost

B5-41

Answer 7

ATC = TC/Q

• -sum of AFC + AVC
• -the vertical distance between AVC curve and ATC curve equals AFC

Question 8

Cost Functions
Marginal Cost

B5-41

Answer 8

MC = change TC/ change Q

–curve intersects the AVC and ATC curves

Question 9

Economies of Scale
definition

B5-43

Answer 9

Companies that are able to reduce per-unit costs by using large plants to produce large amounts of output

Question 10

Economies of Scale
what factors enable it?

B5-43

Answer 10

1. Opportunity for Specialization
2. Utilization of Advanced Tech.
3. Mass production is normally more efficient

Question 11

Diseconomies of Scale
definition

B5-43

Answer 11

Occur when large firms become inefficient and are no longer cost productive

Question 12

Diseconomies of Scale
what factors cause it?

B5-43

Answer 12

1. Bottlenecks and costs of transporting materials

2. Difficulty of supervising and managing a large bureaucracy