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16 Cards in this Set
- Front
- Back
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What is Production Function?
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A technological relationship expressing the maximum quantity of a good attainable from different combinations of factor inputs.
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In short-run which resources are fixed, which are not?
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Labor is variable and all other resources are fixed.
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What is the formula for MPP?
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The change in total output associated with one additional unit of input
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What is the law of diminishing returns?
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The marginal physical product of a variable input declines as more of it is employed with a given quantity of other (fixed) inputs
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Graph MPP
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What is the formula for Marginal Cost?
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The increase in total cost associated with a one unit increase in production.
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Graph Marginal Cost.
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What is the relationship of MPP and MC?
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When MPP is increasing then MC must be failing and vice versa.
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What is Total Cost?
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The market value of all resources used to produce a good or service.
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What is fixed cost?
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Costs of production that do not change when the rate of output is altered (e.g. the cost of basic plant and equipment)
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What is Variable cost?
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Costs of production that change when the rate of output is altered (e.g. labor and material costs)
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Graph MC, TC FC and VC
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What is the relationship between average total cost and marginal cost?
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Marginal cost is the change in total cost for a change in quantity. Average total cost is the per unit burden, therefore when MC < ATC then AC lowers.
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Explain the difference between accounting costs and economic costs.
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Accounting costs are explicit cost such as direct payments to resources. Economic costs are explicit and implicit cost which are value of resources used even w/o direct payment.
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Explain the difference between short run and long run cost of production.
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With short run labor is variable where all other resources are fixed. With long run all resources are variable.
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Explain economies of scale.
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Economies of scale / increse returnes to scale
Inputs double then outputs more than doube Therefore ATC is lower Dis-economies of scale / decrease returns to scale Inputs double then outputs less than double Therefore ATC increases Constant returns to scale Inputs double then outputs double No change in ATC |
