Types Of Cost, Revenue And Profit, Short-run And Long-run Production Flashcards
Q: What are fixed and variable factors of production?
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.
Q: Define average product and marginal product.
A: Average product is the output per unit of input. Marginal product is the additional output produced by one more unit of input.
Q: What is the law of diminishing returns (law of variable proportions)?
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.
Q: What are total, average, and marginal costs?
A: Total cost (TC) = FC + VC. Average cost (AC) = TC/quantity produced. Marginal cost (MC) = change in TC/change in quantity produced.
Q: What is the shape of short-run average cost and marginal cost curves?
A: They are typically U-shaped due to initially decreasing and then increasing marginal costs.
Q: What is unique about the long-run production function?
A: There are no fixed factors of production; all inputs are variable.
Q: What are returns to scale?
A: Returns to scale refer to how output changes when all inputs are increased proportionally.
Q: What is the shape of the long-run average cost curve?
A: It is typically U-shaped, showing economies and diseconomies of scale
Q: What is the concept of minimum efficient scale?
A: It is the lowest level of output at which a firm can minimize long-run average costs.
Q: How do economies of scale relate to decreasing average costs?
A: As a firm increases production, it can achieve lower average costs due to economies of scale.
Q: What are internal economies of scale?
A: Cost savings that result from the firm’s growth, such as bulk buying or managerial specialization.
Q: What are external economies of scale?
A: Cost savings that result from the industry’s growth, such as improved infrastructure or skilled labor availability.
Q: What are internal and external diseconomies of scale?
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.
Q: How do you calculate total, average, and marginal revenue?
A: Total revenue (TR) = price x quantity. Average revenue (AR) = TR/quantity. Marginal revenue (MR) = change in TR/change in quantity.
Q: What is normal profit?
A: The minimum profit necessary to keep a firm operating in its current industry.
