4 Production, Costs and Revenue Flashcards
(246 cards)
1
Q
What is productivity?
A
The quantity of output per unit input for a given time.
2
Q
What does overall productivity measure?
A
Productivity across all four factors of production.
3
Q
What are 2 ways labour productivity could be improved?
A
- More education and training
- Installing better technology
4
Q
What are 2 reasons measuring labour productivity is useful?
A
- Used as a measure of macroeconomic performance and efficiency
- Used to compare workers to each other
5
Q
What does an improvement in productivity do for the firm?
A
Ceteris paribus, an improvement in productivity always increases productive efficiency, but might not do so for the whole economy if the opportunity cost of an improvement in a firm’s productivity was a more productive gain elsewhere, or if externalities are generated.
6
Q
What is the labour productivity formula?
A
Output per unit time / number of employees or hours worked.
7
Q
If the government introduced a scheme to promote internships for young people, what would happen to overall labour productivity?
A
Would probably increase.
8
Q
What is the division of labour?
A
Dividing the workforce into groups and allocating more specific tasks to each group.
9
Q
Division of labour is linked to?
A
Specialisation, because it allows groups to specialise.
10
Q
What does specialisation through division of labour allow firms to take advantage of?
A
Economies of scale.
11
Q
Where was division of labour first posited?
A
Adam Smith in the Wealth of Nations 1776.
12
Q
What are 3 reasons specialisation may be a bad thing?
A
- Workers can become disillusioned, weakening productivity
- Specialised firms are not flexible and less likely to be price elastic or responsive to market changes
- Economic self-sufficiency may be harder to achieve as specialisation encourages outsourcing.
13
Q
What are 3 reasons specialisation may be a good thing?
A
- Economies of scale can be achieved
- Reduces the cost of training workers in many industries because they only have to be trained in one job
- Generally increases labour productivity.
14
Q
What are 3 reasons labour productivity is boosted by specialisation?
A
- Reduced frictional costs
- Increased skill in that particular field - ‘practice makes perfect’
- Capital deepening.
15
Q
Why can specialisation boost quality?
A
Labour gets good at what it does.
16
Q
What are 2 things specialisation necessitates?
A
- Double coincidence of wants - leads to money being used in exchange
- Trade between countries.
17
Q
Why is money necessary?
A
Specialisation.
18
Q
What is a ‘return’?
A
Generally means output.
19
Q
What is the short run?
A
One or more factors of production are fixed.
20
Q
What is the long run?
A
All factors are variable.
21
Q
Why are the ‘economic long run’ and ‘economic short run’ hard to define?
A
They are different for different firms.
22
Q
What are 3 things which might make the economic long run longer for a firm?
A
- Capital indivisibilities e.g. Airbus
- Labour force training e.g. high tech manufacturing
- Legal issues e.g. fixed term contracts.
23
Q
What is the average returns formula?
A
Total return / number of inputs.
24
Q
What are total returns?
A
Returns for all inputs (factors of production).
25
What are marginal returns?
Output from adding an additional marginal unit.
26
Which measure would a firm most likely use when considering expanding from their existing position?
Marginal returns.
27
What happens to marginal returns as output increases in the short run?
Rises and then falls.
28
What happens to average returns in the short run as output increases?
Increase.
29
What happens to marginal costs as output increases in the short run?
Rise.
30
What happens to average costs as output increases in the short run?
Fall and then rise again.
31
What happens to marginal cost, average fixed cost, average variable cost and average total cost in the short run?
Marginal cost will rise over time.
32
Why do average total costs fall in the first instance for the economic short run?
Rise in MC more than offset by fall in AFC.
33
What is diminishing marginal returns?
As output increases, marginal returns spike and then begin to fall.
34
True or false - diminishing marginal returns is caused by falling availability of productive factors.
No, all factors seen to be homogenous. Instead, caused by reducing opportunities for specialisation.
35
What is LRAC composed of?
Lowest points of each SRAC.
36
What is land?
Literally where the firm is.
37
What is labour?
All people employed by the firm in productive work.
38
What is capital?
The stuff used to make other stuff.
39
What are entrepreneurs?
The risk takers and managers who allocate the other factors of production.
40
What is the productivity gap?
The difference in labour productivity between the countries.
41
Give an example of how productivity is vital.
Labour productivity in Rover factories was 33 cars per worker per year, and was 98 in the Nissan plant. Rover was shut down in 2005.
42
What is an example of the limitations of using labour productivity as a measure of worker skill or ability?
Rover Group 2005 - Only because Nissan had better capital that their productivity was 3x higher.
43
What is the productivity puzzle?
Why, since 2009, has the UK performed worse than other competitor countries at boosting LABOUR productivity to pre-recession levels?
44
What are 3 reasons labour productivity may be low in the UK?
1. Capital investment low
2. Labour hoarding (zero-hours contracts)
3. Low wage growth.
45
What is the size of the UK labour productivity gap?
UK produces about a third less than workers in other leading nations per hour worked.
46
What is the size of UK labour hoarding?
5.5 million on zero hours contracts in 2014.
47
What problem does labour hoarding create and what is the evidence?
Underemployment. In 2014, unemployment was 6.8%, but underemployment was 9.9%. Underemployment rate does not include unemployment rate.
48
What is the size of the UK productivity gap?
About 1/5 less productive than our peers.
49
Why is underemployment good for firms?
Makes them more price elastic in supply.
50
Why is underemployment a self-fulfilling problem?
Firms did not want to make skilled employees redundant in case they couldn't rehire them in a competitive labour market, but the labour market was made more competitive by labour hoarding.
51
What was the argument about zombie firms and evaluation?
Firms which perpetuate low labour productivity but can pay interest and not the principal. Cannot afford to invest to boost labour productivity. 2014 - Bank rejected the view that this was the significant cause.
52
What is the 'race to the bottom'?
In order to maintain international competitiveness, firms might have to cut wages to reduce labour costs per hour to their equivalent in competitor countries.
53
Why is the productivity puzzle actually persisting?
2014 - investment still below pre-recession levels.
54
What is a firm?
A productive organisation which produces output and sells it commercially.
55
What is another way to increase labour productivity and give an example?
Reduce waste. Example: TPS - lean manufacturing.
56
What are 2 reasons Coase believed firms could not expand forever?
1. Entrepreneurial returns fall, as it becomes harder for firms to organise additional transactions
2. There becomes increasing potential for bounded rationality and mistakes as the company expands.
57
What is capital deepening symptomatic of?
Increased specialisation.
58
Why does specialisation necessitate trade?
A reasonable stand of living is not achievable from the fruits of specialised labour alone.
59
What is money?
A medium of exchange.
60
How to increase output in the short run?
Add a variable factor to a fixed factor.
61
Is the variable factor always labour?
Not necessarily, though it usually is.
62
When does the law of diminishing returns occur?
In the short run, when one or more factors of production is fixed.
63
State the law of diminishing returns.
As a variable factor of production is added to a fixed factor of production, eventually marginal returns and subsequently average returns will begin to fall.
64
True or false: the law of diminishing returns shows how marginal returns always fall when a variable factor is added to a fixed factor.
False. Because at first the marginal returns are likely to be increasing.
65
Where are diminishing marginal returns likely to set in later?
When the variable factor is labour, since specialisation is more important.
66
What is marginal productivity?
The same as marginal returns.
67
When do increasing marginal returns seem very likely?
When the variable factor is labour and not much labour is so far employed.
68
Why does diminishing marginal returns occur?
There is now too much of the variable factor when compared to the fixed factor.
69
True or false - total returns are maximised at the point where diminishing marginal returns first sets in.
FALSE.
70
What do the TR, MR and AR curves for the short run show?
The law of diminishing marginal returns.
71
What is the key note on the cause of the diminishing marginal returns theory?
Not due to factor scarcity or decreasing quality of factor inputs.
72
What are 3 notes on marginal and average curves?
1. When A > M, it drags A down
2. When M > A, it drags A up
3. When M = A, A is stationary.
73
True or false - when a marginal value rises, so too does the average value.
FALSE.
74
What are returns to scale?
The rate at which output increases as the scale of ALL factors of production is changed.
75
What is a plant?
An establishment of a firm that is used to produce or exchange goods or services.
76
Is a retail outlet a plant?
Yes.
77
Firms grow in the short run until?
Diminishing marginal returns set in.
78
What are increasing returns to scale?
As the scale of all factor inputs increase, output increases more than proportionately.
79
What are decreasing returns to scale?
As the scale of all factor inputs increase, output increases less than proportionately.
80
What are constant returns to scale?
As the scale of all factor inputs increase, output increases exactly proportionately.
81
What is the fundamental problem with measuring long run returns to scale?
What is a 'proportionate' increase in output?
82
What are increasing returns to scale likely to cause?
Economies of scale.
83
What are decreasing returns to scale likely to cause?
Diseconomies of scale.
84
What is TC?
TFC + TVC.
85
What is AC?
VC + AFC.
86
What is the shape of the firm's long run fixed cost curve?
There are no fixed costs in the long run.
87
What is fixed cost?
Cost of production which, in the short run, is not changed by output.
88
What is variable cost?
Cost of production which changes with the amount that is produced, even in the short run.
89
What is the difference between marginal costs and marginal returns?
Marginal cost = addition to total cost; Marginal returns = addition to total output.
90
What does the SRATC curve show?
Diminishing marginal returns.
91
What is an overhead?
A fixed cost of production in the short run.
92
What phenomenon can explain the shape of the AFC curve?
The spreading of overheads.
93
What is key when drawing a diagram showing AVC, ATC and AFC?
ATC must always be highest.
94
If output is 4, AVC is 12 and AFC is 6, is it possible to calculate total cost from this?
Yes, it's 72.
95
What curve does the marginal cost curve cut through at the lowest point?
Both the AVC and the ATC.
96
Why does the MC curve cut through ATC and AVC at their lowest points?
Because whenever a marginal value exceeds an average, it drags it up and vice versa.
97
What is factor price?
The price a firm pays for the employment of a given factor of production.
98
What is interest?
The factor reward for capital and land.
99
What are wages/salaries?
Factor reward for enterprise and labour.
100
What is the business objective according to orthodox economics?
Maximise profits.
101
How to maximise profits?
1. Select the output at which profit is maximised
2. Minimise average costs for this output level by selecting the correct quantities of each factor of production.
102
Why is factor allocation important, even at the profit max level of output?
Need to minimise average costs at this level of output by choosing best factor inputs.
103
How do we select the best factors of production to employ for a given process?
It is a trade off between factor costs being low and productivity.
104
How can we achieve both high employment and high wages? Evidence?
Have capital intensive plants in a competitive market such that the good is more competitive.
105
What are 2 reasons better pay leads to higher productivity, and NOT the other way around?
1. Better motivation
2. Firms need to justify high wages by making workers more productive.
106
How can we increase labour productivity without doing anything to the workers?
Increase productivity elsewhere.
107
What are economies of scale?
Long-run average cost of production decreases as a result of an increase in the scale of the firm.
108
What are diseconomies of scale?
Long-run average cost of production rises as a result of an increase in the scale of the firm.
109
Is the explanation for the U shaped SRAC and U shaped LRAC different?
Yes; SRAC is U shaped due to diminishing marginal.
110
How can we increase labour productivity without doing anything to the workers?
Increase productivity elsewhere, since labour productivity is just output/labour employed for a given time period.
111
Is the explanation for the U shaped SRAC and U shaped LRAC different?
Yes; SRAC is U shaped due to diminishing marginal returns. LRAC is U shaped due to returns to scale.
112
What are the 2 types of economy of scale?
1. Internal
2. External
113
What is internal economy/diseconomy of scale?
Changes in LRAC resulting from a change to the size or scale of a firm or plant.
114
What is external economy/diseconomy of scale?
Changing LRAC resulting always from the GROWTH of the market or industry of which the firm is a part.
115
What are the 6 types of internal economy of scale?
FREMMT
1. Financial
2. Risk bearing
3. Economies of scope
4. Managerial
5. Marketing
6. Technical
116
What is a technical economy of scale?
Changes to the technology used during the production process as a firm grows in the long run.
117
What are the 5 types of technical economy of scale?
VIRMV
1. Volume economies
2. Indivisibilities
3. R&D indivisibilities spread
4. Massed resources
5. Vertically integrated processes
118
What is an indivisibility? Example?
The minimum size of capital which can be efficiently operated by a firm.
## Footnote
How can we make planes without a plane machine?
119
What are economies of massed resources?
Spreading of overheads.
120
Example of massed resources?
Most airlines are required to have in place maintenance facilities. As a percentage of total cost, these are reduced when output is higher.
121
What is a managerial economy of scale?
Use of specialist managerial tactics to reduce average costs as output rises. Essentially capitalises on the opportunity for specialisation within the labour force.
122
What are the 2 types of marketing economy of scale?
1. Bulk-buying - monopsony buying power allows supplies to be bought at a lower price.
2. Bulk-selling - monopoly selling power enables firms to set prices for retailers.
123
Example of marketing economy of scale?
Monopsony buying power of the NHS.
124
Why are indivisibilities and marketing economies of scale linked?
A firm using highly specialised capital which is not sold to many customers may have greater monopsony power for providers of its capital.
125
Example of how vertically linked processes can drive down LRAC?
Reduce influence of middle men e.g. Lehman Brothers.
126
What other kind of economy of scale are financial economies of scale related to?
Marketing economies of scale - essentially the firm's monopsony power on money.
127
Why do firms get financial economies of scale?
Large balance sheet and prestigious reputation means that risk is low.
128
What is a risk-bearing economy of scale?
Large firms are often operative in global markets and diversified. Able to withstand shocks.
129
Example of a risk-bearing economy of scale?
Hyundai-Kia - during 2008/09 recession, many firms dependent on large SUVs struggled or filed for bankruptcy. Hyundai-Kia was able to expand its production of low cost vehicles to stay competitive.
130
What is an economy of scope?
Factors that make it cheaper to produce a range of products together than to produce each individually.
131
Example of an economy of scope?
Procter and Gamble - makes toothpaste, cleaning products, skincare products and feminine hygiene products, all in the same facilities.
132
What are the 3 internal diseconomies of scale?
MCM
1. Managerial - essentially Ronald Coase
2. Communication - divorce of ownership from control etc.
3. Motivational - overspecialisation and de-skilling.
133
What is an example of communicational diseconomies of scale?
Divorce of ownership from control.
134
What are the 2 main limitations of economies of scale theory?
1. Firms can escape diseconomies of scale by simply producing at maximum efficient scale across several plants.
2. Improvements in technology have continued to outpace LRAC.
135
What is the most common cause of external economies of scale?
Cluster effects.
136
Example of external economies of scale?
Detroit autoworkers - known as 'Motown'.
137
What are 3 examples of external diseconomy of scale?
1. Traffic.
2. Decreasing availability of labour factor inputs (higher wages and salaries).
3. Decreasing availability of land (higher rents).
138
Example of an industry with distinctive economies of scale?
Auto industry - 2 million car bodies a year is when MES is achieved.
139
What are 3 ways economies of scale are less important in the car industry?
1. Outsourcing, meaning that we can capitalise on others' economies of scale.
2. Market fragmentation increasing the breadth of products on the market.
3. Building to order.
140
Why have economies of scale become less of a barrier to entry in recent years?
Use of outsourcing.
141
What is LRMC?
Long run marginal cost. The additional cost incurred if a firm increases output when all factors of production are variable.
142
What happens when LRMC > LRAC?
LRAC rises.
143
What happens when LRMC < LRAC?
LRAC falls.
144
Example of volume economies of scale?
Oil tankers.
145
What do oil tankers illustrate?
How volume economies of scale can become volume diseconomies of scale in different contexts.
146
What markets display an L shaped LRAC curve?
Those without significant diseconomies of scale, for instance those with modular production in manufacturing industries.
147
What is MES?
The lowest LEVEL OF OUTPUT at which LRAC have been reduced to the minimum level which can be achieved.
148
What happens to all firms below MES?
Have not maximised the benefits achievable from economy of scale, and are incurring higher SRATC than could be achieved at the MES.
149
True or false - all firms above MES are capitalising on economies of scale most efficiently?
Not necessarily true if DECREASING RETURNS TO SCALE create diseconomies of scale.
150
Where is LRATC NECESSARILY at its lowest?
Both when LRMC cuts LRAC, and when MES is achieved.
151
What is average revenue?
Total revenue / Output.
152
What is marginal revenue?
Change in total revenue / Change in output.
153
What is revenue?
The income made when a firm sells a good or service.
154
What is the total revenue formula?
Price x Quantity of Output.
155
What is the demand curve?
The AR curve.
156
What are 3 occasions when the demand curve is not the AR curve for any firm?
1. Non-linear pricing e.g. bulk discounts.
2. Price discrimination.
3. In oligopoly markets where PED changes.
157
What is non-linear pricing?
As quantity purchased increases, average cost per unit fluctuates.
158
What is the vast majority of cases regarding demand?
In the vast majority of cases, demand is average revenue.
159
Why do the shape of revenue curves depend on market structure?
The AR curve is the demand curve - and therefore, the PED in different markets fluctuates.
160
What is profit?
Total sales revenue - total costs.
161
What is profit maximisation?
The level of output at which total profit is greatest.
162
What is the single objective of firms?
To produce at the level of output at which profit is maximised, and to allocate factor resources so that, for this level of output, costs of production are minimised.
163
What is normal profit?
The minimum profit necessary to keep a firm in operation - satisfying business costs AND opportunity costs.
164
Why is the CMA's job for finding abnormal profits difficult?
Normal profit is NORMATIVE - in the opportunity cost, there is a motivational factor - what does the entrepreneur consider an acceptable alternative.
165
In the long run, firms unable to...
Make normal profit leave the market.
166
Why does normal profit strike a balance?
It must be sufficient to keep existing firms in the market without attracting new firms into the market.
167
What is the similarity between a normal good and normal profit?
Nope. Normal good is one where demand increases with income.
168
What is the function of abnormal profit?
Attract firms into the market.
169
What are 2 reasons abnormal profits are good?
1. Incentivises existing companies to aspire to them by cutting average costs.
2. Encourage new entrants into the market to allow the equilibrium price to be achieved.
170
How can abnormal profits create market failure?
Reward inefficient firms with dominant market positions.
171
Counterargument to the idea that abnormal profits in a monopoly are signs of abuse of consumers?
Can be due to the firm's ACs falling with increased productive efficiency from successful cost cutting.
172
What are the 5 functions of profit in a market economy?
WASPS
1. Worker incentives
2. Allocative function
3. Shareholder incentive
4. Productive efficiency
5. Source of business finance.
173
What is evidence of worker incentives and profit?
Companies with higher salaries often see productivity rise.
174
What is the importance of retained profit for investment?
About 63% of investment in the UK is financed using retained profit.
175
Who holds John Lewis PLC shares?
Employees.
176
What is the John Lewis economy?
Give employees a share of company as their salary.
177
Why does the worker incentives model of profit break down?
Much of the pay doesn't actually go to most of the labour force.
178
What are 2 reasons why the shareholder model of ownership will not prevent the breakdown of the worker incentive function of profit?
1. Short-termism can drive profit surges.
2. Share price is controlled by external factors independent of productivity.
179
What is technological change?
The overall effect of invention, innovation and the diffusion or spread of technology in the economy.
180
When does technological change become normative?
When technological change is conflated with technological improvement.
181
Can technological progress be made positive?
Allegedly, if we simply view it as the process by which technological change is used to make the economy more efficient.
182
What is the difference between invention and innovation?
Invention - making something new. Innovation - improves upon an existing invention.
183
Example of innovation versus invention?
Apple iPod in 2001 - did not invent portable music, but combined them in a revolutionary way.
184
What are the 4 effects of technological change on the economy?
1. Changes to methods of production.
2. Increased productivity.
3. Increased efficiency.
4. Changes to costs of production.
185
What is mechanisation?
The increased use of capital machinery as a complement as well as a substitute for labour.
186
What is automation?
The complete substitution of labour with capital.
187
What is evidence of how technological change has changed methods of production?
Mechanisation of car manufacturing, starting with Henry Ford in 1908.
188
What is evidence of how technological change can affect productivity?
Generally improves it, particularly labour productivity.
189
What is dynamic efficiency?
The extent to which productive efficiency increases over time.
190
What are the 3 causes of dynamic efficiency?
1. Improvements in goods and services.
2. Innovation.
3. Creative destruction.
191
What is the effect of technological change on efficiency?
Generally improves productive and dynamic efficiency.
192
What is the effect of technological change on average costs of production?
Generally drives them down, EXCEPT AT LOW LEVELS OF OUTPUT.
193
What is disruptive innovation?
Innovation which helps create a new market, but by disrupting and potentially even displacing an existing one.
194
Why is disruptive innovation different from creative destruction?
Can create entirely new markets with new goods and services demanded.
195
What is sustaining innovation?
An innovation which develops an existing market, allowing firms to offer better value.
196
What consistent pattern is there for incumbent firms in markets affected by both disruptive and sustaining innovation?
Incumbent firms resist the temptation to innovate, fearing alienating existing customers.
197
Example of disruptive innovation?
Kodak and film - Kodak had been making profit margins up to 50%, by 2011 was bankrupt.
198
How fast did Kodak fall?
1999 - 5% of cameras are digital. 2003 - Kodak cut tens of thousands of jobs.
199
What happened to the market Kodak was in?
Experienced CREATIVE DESTRUCTION.
200
Is technological change always a cause of creative destruction?
No, sometimes can reinforce existing imperfectly competitive structures.
201
What is creative destruction?
The process by which capitalism renews itself and disrupts incumbent market situations via technological evolution.
202
Who theorised creative destruction, when and where?
Joseph Schumpeter, 1942, his book Capitalism, Socialism and Democracy.
203
Is technological change always a cause of creative destruction?
No, sometimes it can reinforce existing imperfectly competitive structures.
## Footnote
E.g. large airplane market with huge capital indivisibilities, is a duopoly.
204
Who theorised creative destruction, when and where?
Joseph Schumpeter, 1942, in his book Capitalism, Socialism and Democracy.
205
Example of sustaining innovation and creative destruction?
iPhone and Nokia dominated the market in 2007.
206
Another example of a company that experienced the Bower and Christensen inertia effect?
Blackberry.
207
Key evaluation point for essays on whether technological change makes markets more or less competitive?
Tech change can reinforce existing structures, e.g., consolidation in the aircraft market as capital indivisibilities become more important.
208
How do economies of scale become less significant due to outsourcing?
Economies of massed resources, e.g., maintenance can be outsourced. Technical indivisibilities can be capitalised on.
209
Primary example of a marketing economy of scale?
Bulk buying raw materials for firms.
210
Example of a diseconomy of scale?
RBS.
## Footnote
Many firms do not really ever experience diseconomies of scale.
211
Marginal cost formula?
Change in total cost / Change in output.
212
What factors in the PPF have the highest marginal returns?
Highly transferable, not necessarily highly specialised factors.
213
5 advantages of specialisation?
1. Productivity
2. Wider range of goods and services
3. Greater allocative efficiency
4. Quality improvements
5. More trade and growth.
214
Division of labour happens after?
Specialisation.
215
Key macro downside of over division of labour?
1. Risk of long term unemployment
2. Non-price competition with homemade goods etc.
216
Usually, what factors are fixed in the short run?
Capital and land.
217
Marginal returns in the short run?
Arise and then fall.
218
Base reason for marginal returns rising initially for the law of diminishing marginal returns?
1. Specialisation
2. Under-utilisation of fixed factors.
219
Why is there the law of diminishing marginal returns?
1. Reduced opportunities for specialisation
2. Scarcity of fixed factors.
220
Costs can be broken down into?
1. Explicit costs (either variable or fixed)
2. Implicit costs (opportunity costs).
221
How do wages and salaries differ?
Wage - flexible rate depending on hours worked
Salary - fixed contractual payment.
## Footnote
Wage is a variable cost, salaries are a fixed cost.
222
AVC =?
C - AFC.
223
When labour productivity is falling and marginal product is falling, AVC is?
Rising.
224
What are the only two short-run cost curves which are NOT affected by the law of DMR?
TFC, AFC.
225
Key evaluation point in market structure questions?
Short-run cost curves are illustrated.
226
When is DMR said to 'set in'?
When MR begins to fall.
227
All the cost curves for the market structure topic refer to firms in the?
Short run.
228
If TC is 10, output is 0, therefore?
Fixed costs are 10.
229
AC =?
TC / Q.
230
AFC + AVC =?
AC.
231
MC =?
DeltaTC/DeltaQ.
232
The marginal equation is related to the average equation always by?
Marginal is just average with deltas on it.
233
MC and AC are the mirror of?
R and MR curves.
234
Explain the shape of the MC using DMR.
1. In the downward part, increasing labour productivity caused by increasing marginal returns means that the MC falls.
2. Beyond the lowest point on the MC curve, labour productivity begins to fall, marginal product begins to fall and marginal cost begins to increase.
235
Whenever marginal physical product decreases?
Marginal cost increases.
236
Scale?
Change in number of all factors of production in the long run.
237
When presented with a quant question to figure out the returns to scale, how do you calculate the percentage change in input?
Add together the change in all factors of production and divide by the total size of the pre-existent factors of production.
238
The cause of changing returns to scale are?
Economies/diseconomies of scale.
239
The descending part of the LRAC curve shows... The increasing part of the LRAC curve shows?
Increasing returns to scale/economies of scale
Decreasing returns to scale/diseconomies of scale.
240
Most LRAC curves?
Have a constant returns period (BUCKET DIAGRAM) more common.
241
Natural monopoly LRAC?
L shaped.
242
Why is the LRAC curve for a natural monopoly L shaped?
Huge fixed costs.
243
TR =?
P x Q.
244
AR =?
TR / Q.
245
AR second formula =?
P.
246
MR =?
DeltaTR/DeltaQ.
