Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
38 Cards in this Set
- Front
- Back
- 3rd side (hint)
Based on the relationship between average total cost and marginal cost, which of the curves appears to be average total cost? |
curve 2 |
Based on the relationship between average total cost and marginal cost, Curve 2 appears to be average total cost. When marginal cost is greater than average cost, the average cost curve will be rising, and when marginal cost is lower than the average cost the average cost will be falling. For this reason, Curve 1 has to be the marginal cost curve and Curve 2 is the average cost curve.
|
|
According to the graph, which level of output represents the minimum efficient scale in bookselling?
|
20,000 books |
According to the graph, 20,000 books represent the minimum efficient scale in bookselling. The minimum efficient scale occurs at the level of output where all economies of scale have been exhausted. In the graph, you can see that long-run average costs are falling until you reach 20,000 books and then constant returns to scale engage and long-run average costs are flat.
If a firm can reach minimum efficient scale, it has lowered long-run average costs as much as possible.
|
|
|
If prices rise the quantity supplied will be
|
greater the longer the time that elapses
|
If prices rise the quantity supplied will be greater the longer the time that elapses. If producers have more time they will be able to adjust production in response to the price change. Consumer income is unrelated to the supplier response to higher prices. And, the availability of substitutes does not impact the supplier reaction to the increase in price unless consumers begin to shift to other products and prices begin to fall again.
|
|
|
In perfect competition, the marginal revenue is the same as:
|
Price
|
In perfect competition, the marginal revenue is the same as price. Marginal revenue is always the amount of revenue you receive from selling one more unit. In perfectly competitive markets: Marginal revenue = marginal benefit = price. |
|
|
The short run is a period of time where __________ while the long run is a period of time where __________. |
at least one input is fixed, all inputs are variable
|
The short run is a period of time where at least one input is fixed, while the long run is a period of time where all inputs are variable. Economists define the long run as the period of time sufficient to be able to adjust all inputs. This distinction is critical since economic decision-making may differ depending on the time horizon. |
|
According to the data in the table, what is the marginal cost of producing the 640th pizza?
|
$43.33 |
According to the data in the table, the marginal cost of producing the 640th pizza is $43.33. When you move from producing 625 pizzas to producing 640 pizzas, the total cost increases from $4,050 to $4,700, which is an increase of $650. Therefore, it costs $650 to produce another 15 pizzas (640 pizzas minus 625 pizzas = 15 pizzas). So, the marginal cost of producing that last pizza is equal to $650 / 15 = $43.33.
Unless this restaurant is able to charge a very high price for pizza the manager will not choose to produce at this level. However, without marginal revenue (price) data we cannot determine the optimal level of production.
|
|
Based on the relationship between marginal and average product, which curve appears to be the average product curve? |
Curve 2
|
Based on the relationship between marginal and average product, Curve 2 appears to be the average product curve. When marginal product is greater than average product, the average product curve will be rising and when marginal product is lower than the average product the average product will be falling. For this reason, Curve 1 has to be the marginal product curve and Curve 2 is the average product curve. |
|
|
The short run is a period of time where __________ while the long run is a period of time where __________. |
at least one input is fixed, all inputs are variable |
The short run is a period of time where at least one input is fixed, while the long run is a period of time where all inputs are variable. Economists define the long run as the period of time sufficient to be able to adjust all inputs. This distinction is critical since economic decision-making may differ depending on the time horizon. The short run and long run differ depending on industry. A portable snow cone unit can adjust all inputs much faster than a large aircraft manufacturer. |
|
According to the table, what is the average total cost of producing 550 pizzas? |
$5.00 |
According to the table, the average total cost of producing 550 pizzas $5.00 per pizza. The average total cost is equal to the total cost divided by the output produced. Therefore the average cost is equal to $2,750 / 550 = $5.00. |
|
What is occurring from the origin up until point A in this graph? |
Output increases at an increasing rate. |
From the origin up until point A in this graph output increases at an increasing rate. Because of the benefits of specialization and the division of labor output will first increase at an increasing rate. During this phase of production each additional worker hired causes production to increase by more than the hiring of the previous worker. At some point the law of diminishing returns will emerge and the marginal productivity of the next worker will begin to decline. |
|
|
The relationship between the inputs used by the firm and the output it can produce is known as the: |
production function |
The relationship between the inputs used by the firm and the output it can produce is known as the production function. The production function is directly related to the level of technology a firm uses. Firms can opt to use more labor and less technology, or vice versa. For this reason, a production function can differ from firm to firm, even if they are in the same industry. The other phrases may be used in manufacturing and operations but are not common phrases seen in economics when studying production. |
|
|
If the price elasticity of supply is 0.4, then a 20% increase in price will __________ the quantity supplied by __________ %. |
increase, 8.0 |
If the price elasticity of supply is 0.4, then a 20% increase in price will increase the quantity supplied by 8.0%. The percentage change in quantity supplied is equal to the elasticity of supply multiplied by the percentage change in price. Quantity supplied will move in the same direction as price since suppliers will be willing to supply more units at higher prices, ceteris paribus. So, 0.40 x 20% = 8.0%. |
|
|
If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then how should we categorize the salaries and benefits paid to these employees? |
As a part of fixed cost |
If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then the salaries and benefits paid to these employees should be considered as a part of fixed cost. Fixed costs remain the same regardless of the level of output. The cost of raw materials and components used to manufacture a product are good examples of variable costs. If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then the salaries and benefits paid to these employees should be considered as a part of fixed cost. Fixed costs remain the same regardless of the level of output. The cost of raw materials and components used to manufacture a product are good examples of variable costs. |
|
Which graph is representative of a typical average total cost curve? |
Graph B |
Graph B is representative of a typical average total cost curve. The average total cost curve is typically U-shaped because costs fall initially as production increases, then flatten out for a period of time, and then begin to rise as the law of diminishing returns kicks in and the marginal product of the variable input begins to fall. Graph A looks more like a total output curve and Graph C is more typical of a total cost curve. |
|
|
What is the name for the additional output that a firm produces as a result of hiring one more worker? |
Marginal product of labor |
The additional output that a firm produces as a result of hiring one more worker is known as the marginal product of labor. The term “marginal” always refers to the next unit of something. In this case we are referring to the change in output that results from hiring another person. The relationship between the inputs used by the firm and the maximum output it can produce is known as the production function. The production function is directly related to the level of technology a firm uses. Firms can opt to use more labor and less technology, or vice versa. For this reason, a production function can differ from firm to firm, even if they are in the same industry. The average total cost is derived by taking the total cost and dividing by the number of units produced to determine a per-unit cost As long as the cost of hiring one more worker is less than the value of the marginal product of labor then it will add value to the firm. |
|
|
Accounting profits will always be __________ economic profit. |
larger than |
Accounting profits will always be larger than economic profit. Accounting profit excludes some implicit costs such as the opportunity cost associated with using a facility instead of renting it to someone else. Since generally accepted accounting practices do not allow the firm to expense these types of costs the firm’s accounting profits will be larger than the economic profit where these costs are considered. |
|
According to the graph, which of the following is more likely to occur when moving from point A to point B? |
Diminishing returns |
According to the graph, diminishing returns are more likely to occur when moving from point A to point B. As you can see, the slope begins to flatten indicating that marginal product of labor is falling. Each additional worker beyond this point will have a smaller marginal product. Division of labor is what allows increasing returns over the range of output from zero units to point A. |
|
According to the graph, which change in output represents economies of scale in bookselling? |
from 1,000 to 20,000 books sold per month |
According to the graph, the change in output from 1,000 to 20,000 books sold per month represents economies of scale in bookselling. As you can see, the long-run average cost curve is decreasing over this range of output so this is the range where the bookseller can really benefit from selling more books |
|
|
If prices rise the quantity supplied will be greater: |
the longer the time that elapses |
If prices rise the quantity supplied will be greater the longer the time that elapses. If producers have more time they will be able to adjust production in response to the price change. Consumer income is unrelated to the supplier response to higher prices. And, the availability of substitutes does not impact the supplier reaction to the increase in price unless consumers begin to shift to other products and prices begin to fall again. It may take time to increase supply if new manufacturing facilities need to be built. Production cannot always immediately respond to price changes. |
|
According to the table of data, when do diminishing returns in the production of pizzas begin?
|
When the third worker is hired According to the table of data, diminishing returns in the production of pizzas begin when the third worker is hired. The marginal product of labor goes from 250 when the second worker is hired to 100 when the third worker is hired. This decline illustrates the law of diminishing returns.
The pizza kitchen may be too small for the third worker to really increase production. Or the production of pizzas may not benefit from additional specialization in the production of pizzas. |
|
|
According to the graph, over what range of output do we find constant returns to scale in bookselling? |
Between 20,000 and 40,000 books
|
According to the graph, we find constant returns to scale in bookselling between 20,000 and 40,000 books. Constant returns to scale occur where the firm’s long-run average costs are flat. At some point, these costs will begin to increase and the firm will begin to experience diseconomies of scale. In this graph, the point of increasing long-run average costs begins at 40,000 books and continues thereafter.
|
|
|
In the short-run, the cost that is independent of the amount of output produced is called __________.
|
Fixed cost
|
In the short-run, the cost that is independent of the amount of output produced is called fixed cost. Fixed cost does not change with the level of output. An example of a fixed cost would be the cost of the equipment used to manufacture a product. Variable costs vary directly with the level of output. As output increases so do variable costs. Examples include the cost of raw materials used to produce a product. Explicit costs include any out-of-pocket cost that you pay such as supplies, utilities, labor, etc. |
|
|
If prices rise the quantity supplied will be greater: |
the longer the time that elapses
|
If prices rise the quantity supplied will be greater the longer the time that elapses. If producers have more time they will be able to adjust production in response to the price change. Consumer income is unrelated to the supplier response to higher prices. And, the availability of substitutes does not impact the supplier reaction to the increase in price unless consumers begin to shift to other products and prices begin to fall again. |
|
|
If the price elasticity of supply is 0.4, then a 20% increase in price will __________ the quantity supplied by __________ %. |
increase, 8.0
|
If the price elasticity of supply is 0.4, then a 20% increase in price will increase the quantity supplied by 8.0%. The percentage change in quantity supplied is equal to the elasticity of supply multiplied by the percentage change in price. Quantity supplied will move in the same direction as price since suppliers will be willing to supply more units at higher prices, ceteris paribus. So, 0.40 x 20% = 8.0%.
|
|
According to the table, what is the average total cost of producing 550 pizzas? |
5 dollars |
According to the table, the average total cost of producing 550 pizzas $5.00 per pizza. The average total cost is equal to the total cost divided by the output produced. Therefore the average cost is equal to $2,750 / 550 = $5.00. According to the table, the average total cost of producing 550 pizzas $5.00 per pizza. The average total cost is equal to the total cost divided by the output produced. Therefore the average cost is equal to $2,750 / 550 = $5.00.
|
|
|
What is the name for the additional output that a firm produces as a result of hiring one more worker? |
Marginal product of labor |
The additional output that a firm produces as a result of hiring one more worker is known as the marginal product of labor. The term “marginal” always refers to the next unit of something. In this case we are referring to the change in output that results from hiring another person. The relationship between the inputs used by the firm and the maximum output it can produce is known as the production function. The production function is directly related to the level of technology a firm uses. Firms can opt to use more labor and less technology, or vice versa. For this reason, a production function can differ from firm to firm, even if they are in the same industry. The average total cost is derived by taking the total cost and dividing by the number of units produced to determine a per-unit cost. As long as the cost of hiring one more worker is less than the value of the marginal product of labor then it will add value to the firm. |
|
|
The short run is a period of time where __________ while the long run is a period of time where __________. |
at least one input is fixed, all inputs are variable
|
|
|
According to the graph, which level of output represents the minimum efficient scale in bookselling? |
20,000 books |
According to the graph, 20,000 books represent the minimum efficient scale in bookselling. The minimum efficient scale occurs at the level of output where all economies of scale have been exhausted. In the graph, you can see that long-run average costs are falling until you reach 20,000 books and then constant returns to scale engage and long-run average costs are flat. |
|
According to the graph, what size bookstore is more likely to experience diseconomies of scale? |
Bookstores that sell more than 80,000 books per month |
According to the graph, bookstores that sell more than 80,000 books per month are more likely to experience diseconomies of scale. As you can see, in the graph, when bookstore sales exceed 80,000 books per month the long-run average cost curve begins to slope steeply upward. This indicates long-run average costs are increasing rapidly beyond this point. |
|
|
What term do economists use to refer to the dollar amount that business owners must earn on their time and effort they invest in a firm? |
Implicit cost |
Economists refer to implicit cost as the dollar amount that business owners must earn on their time and effort they invest in a firm. Economists use the normal rate of return to refer to the minimum amount that investors must earn on the funds they invest in a firm, expressed as a percentage of the amount invested. An investor must earn enough to compensate them for the risk of a particular investment. Different investments have different levels of risk so require different levels of return. Opportunity cost is the cost of the next best foregone alternative and explicit costs are also known as out-of-pocket costs. |
|
|
What is the name for the additional output that a firm produces as a result of hiring one more worker? |
Marginal product of labor |
The additional output that a firm produces as a result of hiring one more worker is known as the marginal product of labor. The term “marginal” always refers to the next unit of something. In this case we are referring to the change in output that results from hiring another person. The relationship between the inputs used by the firm and the maximum output it can produce is known as the production function. The production function is directly related to the level of technology a firm uses. Firms can opt to use more labor and less technology, or vice versa. For this reason, a production function can differ from firm to firm, even if they are in the same industry. The average total cost is derived by taking the total cost and dividing by the number of units produced to determine a per-unit cost. As long as the cost of hiring one more worker is less than the value of the marginal product of labor then it will add value to the firm. |
|
According to the graph, which change in output represents economies of scale in bookselling? |
from 1,000 to 20,000 books sold per month |
According to the graph, the change in output from 1,000 to 20,000 books sold per month represents economies of scale in bookselling.As you can see, the long-run average cost curve is decreasing over this range of output so this is the range where the bookseller can really benefit from selling more books. |
|
|
The relationship between the inputs used by the firm and the output it can produce is known as the: |
production function |
The relationship between the inputs used by the firm and the output it can produce is known as the production function. The production function is directly related to the level of technology a firm uses. Firms can opt to use more labor and less technology, or vice versa. For this reason, a production function can differ from firm to firm, even if they are in the same industry. The other phrases may be used in manufacturing and operations but are not common phrases seen in economics when studying production. |
|
|
The price elasticity of supply always has a: |
positive value |
The price elasticity of supply always has a positive value. According to the law of supply, suppliers will always be willing and able to supply more units as prices increase. Therefore when prices increase the quantity supplied will increase. When prices decrease the quantity supplied will decrease as well. |
|
According to the data in the table, what is the marginal cost of producing the 640th pizza?
|
$43.33
|
According to the data in the table, the marginal cost of producing the 640th pizza is $43.33. When you move from producing 625 pizzas to producing 640 pizzas, the total cost increases from $4,050 to $4,700, which is an increase of $650. Therefore, it costs $650 to produce another 15 pizzas (640 pizzas minus 625 pizzas = 15 pizzas). So, the marginal cost of producing that last pizza is equal to $650 / 15 = $43.33. Unless this restaurant is able to charge a very high price for pizza the manager will not choose to produce at this level. However, without marginal revenue (price) data we cannot determine the optimal level of production. |
|
|
The price elasticity of supply always has a: |
positive value |
The price elasticity of supply always has a positive value. According to the law of supply, suppliers will always be willing and able to supply more units as prices increase. Therefore when prices increase the quantity supplied will increase. When prices decrease the quantity supplied will decrease as well. |
|
|
If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then how should we categorize the salaries and benefits paid to these employees? |
As a part of fixed cost |
If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then the salaries and benefits paid to these employees should be considered as a part of fixed cost. Fixed costs remain the same regardless of the level of output. The cost of raw materials and components used to manufacture a product are good examples of variable costs. Variable costs are affected by the level of output produced. Variable costs, specifically defined, are those costs that vary with the number of units produced. Implicit costs are nonmonetary opportunity costs. The salaries of these individuals are explicit out-of-pocket fixed costs that do not vary with production. Some labor costs vary with production and some do not. For this reason labor costs can fall into either fixed or variable cost categories. |
|
|
What term do economists use to refer to the dollar amount that business owners must earn on their time and effort they invest in a firm? |
Implicit cost |
Economists refer to implicit cost as the dollar amount that business owners must earn on their time and effort they invest in a firm. Economists use the normal rate of return to refer to the minimum amount that investors must earn on the funds they invest in a firm, expressed as a percentage of the amount invested. An investor must earn enough to compensate them for the risk of a particular investment. Different investments have different levels of risk so require different levels of return. Opportunity cost is the cost of the next best foregone alternative and explicit costs are also known as out-of-pocket costs. |
