Types Of Cost, Revenue And Profit, Short-run And Long-run Production Flashcards

1
Q

Q: What are fixed and variable factors of production?

A

A: Fixed factors of production do not change with the level of output produced, whereas variable factors of production change with the level of output produced.

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2
Q

Q: Define average product and marginal product.

A

A: Average product is the output per unit of input. Marginal product is the additional output produced by one more unit of input.

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3
Q

Q: What is the law of diminishing returns (law of variable proportions)?

A

A: As successive units of a variable factor are added to a fixed factor, there comes a point when the additional output per unit of input decreases.

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4
Q

Q: What are total, average, and marginal costs?

A

A: Total cost (TC) = FC + VC. Average cost (AC) = TC/quantity produced. Marginal cost (MC) = change in TC/change in quantity produced.

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5
Q

Q: What is the shape of short-run average cost and marginal cost curves?

A

A: They are typically U-shaped due to initially decreasing and then increasing marginal costs.

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6
Q

Q: What is unique about the long-run production function?

A

A: There are no fixed factors of production; all inputs are variable.

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7
Q

Q: What are returns to scale?

A

A: Returns to scale refer to how output changes when all inputs are increased proportionally.

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8
Q

Q: What is the shape of the long-run average cost curve?

A

A: It is typically U-shaped, showing economies and diseconomies of scale

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9
Q

Q: What is the concept of minimum efficient scale?

A

A: It is the lowest level of output at which a firm can minimize long-run average costs.

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10
Q

Q: How do economies of scale relate to decreasing average costs?

A

A: As a firm increases production, it can achieve lower average costs due to economies of scale.

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11
Q

Q: What are internal economies of scale?

A

A: Cost savings that result from the firm’s growth, such as bulk buying or managerial specialization.

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12
Q

Q: What are external economies of scale?

A

A: Cost savings that result from the industry’s growth, such as improved infrastructure or skilled labor availability.

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13
Q

Q: What are internal and external diseconomies of scale?

A

A: Internal diseconomies occur when a firm’s growth leads to inefficiencies. External diseconomies occur when industry growth leads to higher costs for all firms.

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14
Q

Q: How do you calculate total, average, and marginal revenue?

A

A: Total revenue (TR) = price x quantity. Average revenue (AR) = TR/quantity. Marginal revenue (MR) = change in TR/change in quantity.

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15
Q

Q: What is normal profit?

A

A: The minimum profit necessary to keep a firm operating in its current industry.

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16
Q

Q: What are subnormal and supernormal profits?

A

A: Subnormal profit is less than normal profit (a loss). Supernormal profit is greater than normal profit.

17
Q

Q: What principle guides the combination of factors in production?

A

A: The extra output from the last dollar spent on each factor must be the same to minimize cost.

18
Q

Q: What does the law of diminishing returns imply about marginal product?

A

A: Initially, marginal product increases, then it decreases and may become negative as more units of a variable factor are added.

19
Q

Q: What is the relationship between average and marginal product curves?

A

A: When marginal product is above average product, average product rises. When marginal product is below average product, average product falls.

20
Q

Q: What distinguishes short-run from long-run in production?

A

A: In the short-run, at least one factor is fixed. In the long-run, all factors are variable.

21
Q

Q: What is a firm’s goal regarding costs in production?

A

A: To produce at the lowest possible cost by finding the right combination of inputs based on their prices.

22
Q

Q: Define accounting and economic costs.

A

A: Accounting costs are the actual monetary expenses. Economic costs include accounting costs plus opportunity costs.

23
Q

Q: How do inputs relate to output in production?

A

Q: How do inputs relate to output in production?

24
Q

Q: What is the role of marginal cost in firm’s supply decisions?

A

A: A firm supplies where price is greater than or equal to marginal cost (MC).

25
Q

Q: What are the reasons for internal economies of scale?

A

A: They include technical, managerial, commercial, financial, and risk-bearing economies.