Managerial Analysis 2

Front 1

How do you get the Maximum MPL?

Back 1

Take the second derivative of the TP function and set equal to zero.

Front 2

If MPL = APL, APL is _____________

Back 2

At it's maximum.

Front 3

What is the formula for MP?

Back 3

The Change in TP/ the change in # of workers

(1st Derivitive of TP function)

Front 4

What is MRP and what is the formula for it?

Back 4

MRP is the additional amount of revenue resulting from the use of an additional unit of variable input

Multiply MPL by the Price

Front 5

Which term do we only use in the short run?

Back 5

Diminishing Marginal activity

Front 6

What is "Diminishing Marginal Product of Labor?"

Back 6

Only in the Short Run: Holding everything else constant, as you hire more workers, at some point the additional product (MP) would begin to decrease

Front 7

What is the formula for APL ?

Back 7

Total Product / Labor (Take TP function and divide each unit by L)

Front 8

If MPL > APL, APL is ____________?

Back 8

Increasing

Front 9

If MPL < APL, APL is ___________?

Back 9

Decreasing

Front 10

What is the equation for Total Revenue?

Back 10

P*Q

Front 11

What is the formula for Total Labor Cost?

Back 11

# of Workers * Wage rate

Front 12

Why do we put data into natural logs?

Back 12

1. Makes the data linear, so it's easier to use Ordinary Least Squares (OLS)
2. We get an easy interpretation of the results.

Front 13

How do you get the anti log to get the intercept?

Back 13

Take the LN of the intercept, and put it as the exponsnt for 2.71.

Front 14

How do you determine if an equation has CRS, IRS or DRS?

Back 14

Add the coefficients for L and K together. If the answer is greater than 1, it is IRS, if it is 1, it is CRS, if it is less than 1 it is DRS

Front 15

Once you've added the coefficients to determine if an equation has CRS, IRS or DRS, how would you prove it?

Back 15

Double the L & K inputs and put them back in the original formula to get a new answer for Q. If the output followed what you got when you added the coefficients together, you can prove your theory

Front 16

How do you determine the elasticities of production for labor and capital?

Back 16

They are equal to the exponents on L&K

Front 17

How do you determine if a coefficient is significant?

Back 17

Divide it by the Standard Error, if the answer is greater than 2 it is significant.

Front 18

At what level of labor does diminishing MPL set in?

Back 18

MPL starts to fall (diminish) after it hits its maxiumum, ie, where the first derivative of MPL = 0. You would also see this at TP's inflection point ( where the slope changes from increasing at an increasing rate to increasing at a decreasing rate)

Front 19

AT what level of labor is TP at its maximum? How do you know you've found a max and not a min?

Back 19

Where MPL = 0, TP is at it's max. Use the 1st derivative of the TP function and plug into the quadratic equation. Plug answers into 2nd derivative.

The lower number equals the max
the higher number equals the min

Front 20

How do you find the level of labor where APL is at its max?

Back 20

Take the 1st derivative of the APL function and set equal to 0. Solve for L

OR

Use the fact that MPL intersects APL at APL's max. So you could set MPL = APL and solve for L

Front 21

What is Marginal Product of Labor (MPL) and what is the equation for it?

Back 21

MP is the change in output resulting from a unit change in one of the firm's inputs.

Change in Output / Change in # workers

Front 22

What is the formula for Marginal Cost?

Back 22

Change in Total Cost / Change in input (aka Q)

Front 23

How do you get the Marginal Revenue Product of labor?

Back 23

Multiply the MPL by the price

Front 24

How do you know when you should stop hiring workers?

Back 24

When the MRP is equal to or falls below the MLC (wage)

Front 25

In the Power production function, (Q = aL^b), what does B give us?

Back 25

The direction of the MPL.

If B>1 = Increasing MPL (Positive slope)
if B=1 = Constant MPL (Negative slope)
if B<1 = Decreasing MPL (Negative slope)

Front 26

What is the formula for Average Total Cost (ATC)?

Back 26

Total Cost / Quantity (TC/Q)

Front 27

What is the formula for Average Fixed Cost (AFC)?

Back 27

Total fixed cost / quantity

Front 28

What is the formula for Average Variable Cost (AVC)?

Back 28

Total Variable cost / Q

Front 29

Which average cost is forever falling and why?

Back 29

Average Fixed Cost - Because we are dividing the same fixed cost over more and more units of production

Front 30

What is the formula for marginal cost? (MC)?

Back 30

Change in total costs with a one unit change in quantity.

Change in TC/ Change in Q

Front 31

What point is where your greatest efficiency is? Where you're able to produce something at the lowest cost?

Back 31

At the minimum point on the Average Total Cost curve. (which is where MC hits it)

Front 32

What are the 4 types of industry forms (Market Structure)?

Back 32

1. Perfect Competition
2. Oligopoly
3. Monopoly
4. Monopolistic Competition

Front 33

Where does market power come from?

Back 33

The amount of competition you have. The more firms, the more rivals, and the less control you have over prices. Which leads to having less market power.

Front 34

What are some characteristics of Perfect competition market types?

Back 34

A large number of small firms, standardize product, easy entry and exit to market, and relatively no market power in terms of pricing.

Front 35

What are some characteristics of Monopolistic competition market types?

Back 35

A large number of relatively small firms, differentiated product, easy market entry and exit, and the differentiated product can give the firms some market power. example: different kinds of pizza places charging different amounts for pizza.

Front 36

What are some characteristics of monopoly market types?

Back 36

One firm with a unique product. Very difficult to enter and exit market, and price competition is not necessary.

Front 37

What are some characteristics of oligopoly market types?

Back 37

A small number of relatively large firms with standardized or differentiated products. It's difficult to enter and exit the market and they pay attention to other competition and their prices.

ex: airlines.

Front 38

What market types are highly theoretical and do not really exist in the real world?

Back 38

Perfect Competition and Monopolies

Front 39

What are characteristics that dictate your industry?

Back 39

1. Barriers to exit and entry (costs, regs, etc)
2. Information (regarding prices, demand, competitor's behavior)
3. Profits in the long run (economic, not accounting, Econ takes into account opp. cost)
4. Ability to differentiate your product. Critical to Monopolistic Competitive firm)

Front 40

In perfect competition, no matter what ____ is, _____ is always the same

Back 40

In perfect competition, no matter what Q is, P is always the same

Front 41

What is the formula for AR (Average Revenue) for a PC market?

Back 41

Total Revenue/Q

This will always equal P in a PC firm

Front 42

What is the formula for MR (Marginal revenue) for a PC Market?

Back 42

The Change in total revenue / the change in Q

This will always equal P in a PC firm

Front 43

In A PC market, P =

Back 43

P = Marginal Revenue and also the Demand Curve

Front 44

What are services where the labor to capital ratio matters?

Back 44

Education
Counseling Services
Travel Services
Legal Services
Insurance Claims

Front 45

What are services that the L/k ratio does not matter?

Back 45

Walmart
Tool Booth
Delivery Services
Video Rentals
Car wash

Front 46

On the Long Run Average Total Cost Curve (LRATC), if you have Economies of Scale, what is happening?

Back 46

As Q is increasing, your average costs are falling

Front 47

On the Long Run Average Total Cost Curve (LRATC), if you have Diseconomies of Scale, what is happening?

Back 47

As Q is increasing, your average costs are rising

Front 48

On the Long Run Average Total Cost Curve (LRATC), if you have Constant Returns to Scale, what is happening?

Back 48

As Q is increasing, average costs stay constant

Front 49

What can give you economies of scale? (Costs falling as Q is rising)? (5)

Back 49

1. Can spread out costs on a per-unit basis
2. Efficiency, use of larger equipment
3. As you get bigger, you can specialize more
4. Bulk discounts/price negotiations
5. Better terms of credit

Front 50

What can give you diseconomies of scale? (Costs rising as Q is rising)?

Back 50

1. More beaurocarcy
2. More monitoring costs
3. Health care costs
4. Decreased morale
5. Transportation costs

Front 51

Why does the LRATC look similar to the SRATC?

Back 51

The SR curve reflects Diminishing Marginal Product of Labor where the LR curve reflects Economies of Scale

The LR curve is also referred to the Envelope because it envelopes all of the SRATC curves

Front 52

The area between the ATC and AVC curves is the

Back 52

Total Fixed Cost (Contribution Margin).

Front 53

In the short run, How do you know if you should stay open?

Back 53

If Price > AVC - Stay open. You are covering some variable costs until you can shut down in the long run

Front 54

In the short run, how do you know if you should shut down?

Back 54

If P < AVC - Shut down. You are

Front 55

In the long run, how do you determine if you should exit the market?

Back 55

If P < ATC - exit the market.

Front 56

In the long run, how do you determine if you should stay open?

Back 56

If P > ATC - Stay open.

Front 57

What is the Marginal Labor Cost?

Back 57

The additional cost to the firm of using an additional unit of labor

Front 58

What is the Marginal Revenue of Product?

Back 58

The additional amount of revenue resulting from the use of an additional unit of a variable input.

Front 59

In the short run, what are the 3 stages of production and when do they occur?

Back 59

Stage 1: Starts at zero and continues to the highest level of Average product (APL). In this stage, the firm is underutilizing its fixed inputs

Stage 2: Continues from this point until the firm reaches the level of maximum total product. Will also be when MPL = 0 (optimum stage for company)

Stage 3: continues from this point on. At this stage, the firm is over utilizing its fixed inputs.