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AP Micro > unit 3 > Flashcards

unit 3 Flashcards

1
Q

production function

A

shows the relationship between the quantity of inputs and the quantity of outputs

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2
Q

long run production functions

A

all inputs are variable

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3
Q

short run production function

A

at least one input is fixed, the inputs can be varied

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4
Q

increasing marginal returns

A

at low quantities of workers hired, each additional worker is going to increase the Total product at an INCREASING rate
Marginal product increasing, total product was increasing at an increasing rate

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5
Q

diminishing marginal returns

A

increasing the the amount of workers hired will still increase the total product BUT it will increase at a DECREASING rate
when marginal product begins to decrease but it is still positive which means total product is increasing at a decreasing rate

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6
Q

Negative returns

A

as more workers are hired, total product will begin to fall
total product decreasing, and marginal product is negative

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7
Q

marginal product

A

change in total product / change in quantity of labor
slope of TP curve is MP

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8
Q

where would diminishing returns set in?

A

the FIRST WORKER where you would see a DECREASE in marginal product

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9
Q

after which worker would diminishing returns set in?

A

the worker BEFORE the one where it first starts to decrease

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10
Q

Total product is at its max when

A

Marginal product is 0

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11
Q

what does increasing marginal returns come from

A

specialization

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12
Q

reason for diminishing marginal returns

A

more workers spread between fixed amount of capital so the equipment gets used, becoming less efficient over time so you product would start to decrease if your machines aren’t working to produce it

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13
Q

reason for negative marginal returns

A

more workers get in each others way and reduce production

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14
Q

average product is

A

total product / quantity of labor

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15
Q

whenever MP > AP the AP is

A

rising

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16
Q

whenever MP < AP the AP is

A

falling

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17
Q

Marginal Cost is

A

change in VC / change in TP
or change in total cost / change in quantity

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18
Q

what happens to MC due to specialization

A

at Low units of outputs the marginal costs will begin to fall (upward curve in the MC curve)

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19
Q

when MP is rising MC is

A

falling

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20
Q

When MP is falling, MC is

A

rising

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21
Q

is AP is rising, AVC is

A

falling

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22
Q

If AP is falling, AVC

A

is rising

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23
Q

to calculate AFC

A

fixed cost / Quantity or Total Product

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24
Q

to calculate AVC

A

Variable cost / Quantity or TP

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25
Q

fixed cost

A

usually the rent, FC doesn’t change

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26
Q

To calculate Variable cost

A

(units of labor x employee cost) + (total product x cost of resources)
or
cost per unit x total number of units
or
TC - FC
or
Total cost of materials + total cost of labor

changes as more output is produced

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27
Q

total variable cost

A

sum of all the MC

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28
Q

to calculate Total cost

A

add Fixed cost and Variable Cost
OR
ATC x Q

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29
Q

to calculate Marginal Cost

A

change in total cost / change in total product

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30
Q

to calculate Average fixed cost, AFC

A

fixed cost / total product

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31
Q

to calculate Average variable cost, AVC

A

variable cost / total product

TFC - TC

ATC - AFC

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32
Q

to calculate Average total cost, ATC

A

Total cost / total product

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33
Q

to calculate total fixed cost, TFC

A

AFC x Q

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34
Q

to calculate TR

A

price x quantity

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35
Q

to calculate MR

A

change in TR / change in quantity

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36
Q

Profit is when

A

MR = MC is above ATC
the point is above the two curves

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37
Q

Breaking even is

A

MR= MC=ATC
no profit, ATC intersects MR=MC point

38
Q

operating @ loss is

A

MR = MC is between ATC and AVC

39
Q

shut down is when

A

AVC is above MR = MC
you’re losing more money than just your fixed cost so its best if you shut down

40
Q

if the company is making no economic profit then

A

the company is making a normal profit –> which is just when economic profit = 0, your accounting profit is still positive

41
Q

what are variable resources

A

resources that change with the number of products produced

42
Q

law of diminishing marginal returns

A

that adding an additional factor of production results in smaller increases in output.

in the short run, if you keep adding more of one input (like hiring more workers) to a fixed set of resources (like machinery and workspace), there will come a point where the additional output produced by each additional unit of that input will be smaller than the previous one. This is because the fixed resources can only support so much of the variable input, and as you add more, they become less productive or efficient.

43
Q

what is the difference between ATC and AVC

A

AFC which is the area between the two curves

44
Q

what is LRATC

A

long run average total cost which is a SUM of all ATC’s

45
Q

economies of scale means what and is what quadrant on a graph

A

the first quadrant and it means as production increases, the cost per unit decreases, making it more cost-efficient to produce more. This is often achieved by spreading fixed costs (like machinery or infrastructure) over a larger number of units, which reduces the cost per unit

output increases greater in proportion to input changes

46
Q

constant returns to scale is in what quadrant and what does it mean

A

2nd, middle quadrant. It means if you double your production, your cost per unit doesn’t change – it stays constant. This suggests that the company’s cost structure is efficient and doesn’t significantly change as it scales up production

output increases at the same proportional rate as input
the long run ATC is as low as it can get

47
Q

what quadrant is diseconomies of scale and what does it mean

A

in the last quadrant and it means as production increases beyond a certain point, the cost per unit goes up, making it less cost-efficient to produce more. This can happen when the organization becomes too large or complex, leading to inefficiencies that drive up costs

output increases at a lower proportional rate than input changes
increasing as the firm gets too big and difficult to manage

48
Q

what does LRATC not have

A

fixed cost

49
Q

what are variable costs

A

costs for variable resources (changing) that do change as the amount produced changes

50
Q

total cost

A

sum of fixed cost and variable cost

51
Q

what is marginal costs

A

the additional costs of 1 additional output (the production of 2 more workers equals more output)

52
Q

what is long run used for

A

the long run is used for planning. firms use the long run to identify the results of something in the future

53
Q

what happens when the Lon run average costs falls

A

a mass production technique is used to change what is happening in the long run

54
Q

what is the first characteristic of a perfect competition

A

Price takers- they have to take whatever the price is in the Market because if a firm charges more than market price, no one will buy

55
Q

second characteristic of perfect competition is

A

lots of competitors, there’s so many so they have to take the price

56
Q

their characteristic of a perfect competition is

A

standardized products- so they all make and sell the same product(s)

57
Q

fourth characteristic of perfect competition is

A

Free entry and exit of the market - If firms aren’t making money they’ll leave the market and if they are profiting then they’ll join

58
Q

fifth characteristic pf perfect competition is

A

zero economic profit- so when the firms break even, MR=MC =ATC

59
Q

what is the difference between diminishing marginal returns and negative marginal returns

A

diminishing marginal returns indicate a reduction in the rate of increase of additional output with each unit of input, while negative marginal returns suggest that the addition of one more unit of input causes a decline in the total output

60
Q

what is true about economies of scale and increasing returns to scale

A

economies of scale refers to the relationship between long run average total cost and the size of the firm. increasing returns to scale refers to the relationship between inputs and outputs

61
Q

If TR> TC, then you have a

A

Economic profit

62
Q

If TR=TC

A

the firm breaks even, normal profit

63
Q

If TR<TC

A

Economic loss

64
Q

If MR> MC,

A

Firms should produce more output

65
Q

If MR< MC,

A

firms should produce less output

66
Q

MR = MC

A

Profit maximization

67
Q

Breaking even is when

A

MR=MC=ATC
and
TC=TR

68
Q

Where is profit maximized for cost

A

where TR> TC

69
Q

When firms exit the market because they are earning an economic loss

A

They will exit the market and the prices will rise which will cause economic profit to go back to 0

70
Q

Marginal Revenue (MR) also represents

A

Average revenue, demand, and price

71
Q

what is true if average total cost is decreasing

A

marginal cost is less than the average cost

72
Q

AVC can be found by

A

VC/Q
or
TC-FC/Q

73
Q

AP

A

TP/Q

rises when MP is above it and falls when MP is below it

74
Q

firms will always produce in the elastic or inelastic portion of the graph?

A

elastic (middle and/or above)

75
Q

Fixed cost continuously falls as what increases and why

A

Quantity increases because the same fixed cost is divided by a larger and larger quantity

76
Q

AVC falls and rises when

A

falls when MC is below it and rises wen MC is above it

reaches its minimum when it intersects the MC curve

77
Q

Marginal costs are

A

change in TC/ change in quantity
or
change in TVC / change in quantity

Decrease in the beginning b/c the first few units of input produce more additional output than the units before them
Eventually increases due to the law of diminishing marginal returns

78
Q

productive efficiency

A

Price = minimum ATC

79
Q

Allocative efficiency

A

Price = Marginal cost

80
Q

AR is

A

TR / Q

81
Q

when TR is greater than TC, the vertical distance represents what

A

profits

82
Q

when TR is less than TC, the vertical distance represents

A

losses

83
Q

P > ATC

A

firms are making economic profits

84
Q

AVC<P<ATC

A

firm is incurring economic losses but will stay open

85
Q

what are the two options in the short run is the fit is operating @ a loss

A

i. Shut down and not incur variable costs, but not obtain any revenue for fixed costs
ii. Remain open and cover all of its variable costs (b/c P > AVC), and pay off some of
its fixed costs with the difference between P and AVC
1. Better of the two alternatives

86
Q

P < AVC

A

firm is incurring losses and will shut down as it can’t cover its variable costs

87
Q

MC curve decreases

A

when there is increasing marginal product

88
Q

mc curve increases

A

when there is decreasing marginal product

89
Q

what would shift the Lorenz curve inwards

A

an increase in progressive taxes

90
Q

whats the gini ratio

A

a measure of income equality
as the ratio gets closer to zero, the more equally the income is distributed.
as the ratio gets closer to one, the more unequally the income is distributed

AP Micro (6 decks)

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