Topic 3 Flashcards
The _____ states that as you try to expand output, your marginal productivity (the extra output associated with extra inputs) eventually declines.
law of diminishing marginal returns
_____often arise when more workers, or any variable input, must share a fixed amount of a complementary input.
Bottlenecks
Diminishing marginal productivity implies increasing _____.
marginal cost
Increasing marginal costs eventually lead to increasing____.
average costs
If long-run average costs are constant with respect to output, then you have _____.
constant returns to scale
If long-run average costs rise with output, you have _____
decreasing returns to scale or diseconomies of scale
If long-run average costs fall with output, you have ______
increasing returns to scale or economies of scale.
If long-run average costs fall with output, you have ______.
increasing returns to scale or economies of scale
____a proportionate saving gained by producing two or more distinct goods, when the cost of doing so is less than that of producing each separately.
Econmies of Scope
____ is to produce to the same thing in larger and larger volumes. It’s doing the same thing over and over again
Scale
____ on the other hand is a way to get to large volume by adding variety to the mix. Scope means doing a lot of things that are different by share some apects.
Scope
Which of the following helps explain why marginal cost eventually increases as output increases?
The law of diminishing returns
Constant returns to scale means that as all inputs are increased,
total output increasess
Learning curves describe a relationship between
Average cost and units
Diseconomies of scale imply that
the firm should consider a reduction in production.
_____firm experiences increasing marginal costs per additional unit of output.
Diseconomies of scale
Economies of scope exist when
changing the mix of products produced reduces average cost.
Increasing complexity of management and challenges of coordination as firms produce a wider variety of products can be a source of
diseconmies of scope
Econmies of scale characteristics(2)
Decline Average cost
Cost declines with production
_______when firms, economic profit is zero , firms break even, and price equals average cost (i.e., no one wants to enter or leave the industry).
Long-run equilibrium
A competitive firm can earn positive or negative economic profit in the_____ but only until entry or exit occurs.
short run
In the____, competitive firms earn only an average rate of return.
long run
_____ tends to revert to zero
Economic profit
_____suggests that performance eventually moves back toward the mean or average.
Mean Reversion
If we are analyzing an increase in demand in an industry, price and quantity will increase in the____, and firms will earn above-average profit.
Short term
In the____, these above-average profits will attract new assets into the industry, which will increase supply until profits fall back to the average.
Long Run
______if an asset is mobile, then in long-run equilibrium, the asset will be indifferent about where it is used; that is, it will make the same profit no matter where it goes.
Indifferent Principle
_______differences in wages that reflect differences in the inherent attractiveness of various professions or jobs (once equilibrium has been reached).
Comensating Wage ifferentials
_____higher expected rates of return that compensate investors in risky assets. In equilibrium, differences in the rate of return reflect differences in the riskiness of an investment.
Risk Premium
_____a firm that is the single seller in its market. Monopolies have market power because they produce a product or service without close substitutes, they have no rivals, and barriers to entry prevent other firms from entering the industry.
Monopoly
