Week 4 Flashcards
What is production function?
A schedule showing the maximum amount of output that can be produced from any specified set of inputs.
What is variable proportions production?
Production in which a given level of output can be produced with more than one combination of inputs.
What is fixed proportions production?
Production in which one, and only one, ratio of inputs can be used to produce a good.
What is technical efficiency?
Producing the maximum amount of output for any given combination of inputs and existing technology.
What is economic efficiency?
Producing a given level of output at the lowest possible total cost.
What is a variable input?
An input which the level of usage may be varied to increase or decrease output.
What is a fixed input?
An input for which the level of usage cannot be changed and which must be paid for even if no output is produced.
What is the planning horizon?
Set of all possible short-run situations the firm can face in the future.
Are fixed costs sunk costs?
Yes or no?
Yes.
Are avoidable costs variable costs?
Yes or no?
Yes.
What is the formula for short run production function?
Q = F (L,K)
True or false:
In the short run, capital is a fixed input
True.
What is the formula for average product of labor?
AP = Q/L
What is the formula Q/L?
Average Product of Labor.
What is the marginal product of labor formula?
MP = 🔺Q/🔺L
What is the formula 🔺Q/🔺L?
Marginal product of labor
When AP is rising, ________ is greater than AP.
Marginal product.
When AP is falling, _____________ is less than AP.
Marginal product.
When AP reaches maximum, what happens?
AP = MP
What is the law of diminishing marginal product?
As usage of a variable input increases, a point is reached beyond which its marginal product decreases.
What is the formula for average product?
Q / L
What is the formula for marginal product?
🔺Q / 🔺L
How do you calculate 🔺Q?
Q2-Q1
What does L equal?
Number of workers.
What is total variable cost? (TVC)
Total amount paid for variable inputs, increases as output increases.
What is total cost? (TC)
The sum of total fixed costs and total variable costs.
TC = TFC + TVC
What is the formula for total cost?
Total fixed cost plus total variable cost.
What is the formula for average variable cost? (AVC)
Total variable cost / Quantity
What is the formula for average total cost? (ATC)
Total cost / Quantity
What is the average fixed cost formula?
AFC = TFC / Q
What is the formula for short run marginal cost?
🔺TC / 🔺Q
True or False:
Short-run marginal costs cut ATC and AVC at their lowest point?
True
True or False:
AFC increases continuously as output increases?
False. AFC decreases as output increases.
True or False:
AVC is a straight line?
False. U-Shaped.
True or False:
ATC is U-Shaped.
True.
True or False:
SMC is U-Shaped.
True/
True or False:
SMC intersects AVC and ATC at their lowest points?
True.
Average variable cost = W / what?
Average product.
SMC = W / What?
Marginal Product
TC = ____________
wL + rK
True or False:
When marginal product is increasing, marginal cost is increasing.
False.
True or False:
When Marginal product is decreasing, marginal cost is increasing.
True.
Wage / Ap is the formula for?
Average variable cost
What are the 2 ways to calculate AVC?
TVC/Q OR W/AP
What are the two ways to calculate SMC?
W/MP OR 🔺TC/🔺Q
What are the 2 ways to calculate TC?
AVC + AFC OR wL + rK
What is the formula for TVC?
Cost per unit * total number of units
What is the formula for AFC?
TFC/Q
What is the formula for AVC?
TVC/Q
What is the formula for SMC?
🔺TC/🔺Q or w/MP
What is the formula for ATC?
TC/Q
The law of diminishing product is illustrated by what?
The negative slope of the marginal product curve.
Holding all other things constant, when the fixed inputs of production increase…
Average product and marginal product will increase.
The marginal cost curve crosses both the average variable cost curve and the average total cost curve where?
At their lowest points.
