AGRI ECON Flashcards
(39 cards)
How to get total cost (TC)
TFC+TVC
TOTAL FIXED COST PLUS TOTAL VARIABLE COST
How to get average fixed cost AFC
Total fixed cost divided by Quantity
How to get Average variable cost
Total variable cost divided by Quantity
How to get average total cost
TOTAL COST divided by Quantity
How to get marginal cost
Change in TOTAL COST divided by change in Quantity
Explanation of how a firm makes costminimizing production decisions and
how its cost varies with its output
THEORY OF THE FIRM
Inputs into the
production process (e.g.
labor, capital, and
materials).
FACTORS OF
PRODUCTION
refers to all natural resources such thing as the physical land itself water soil timber are all examples of land economic return on land is called rent for example of person could own land and rent it to the former who could use it to grow crops
land
refers to the human effort to produce goods and services in economic return and labor is called wage anyone who has work for a business and collected a paycheck for the work than understands wages
labor
anything that is produced in order to increase productivity in the future tools machines and factories can be used to produce other goods the field of economics differs from the field of finance and does not consider money to be capital economic return and capital is called interest
capital
refers to the management skills are the personal initiative used to combine resources and productive ways entrepreneurship involves taking of risk economic return on entrepreneurship is called profit
entrepreneurship
The _______________ portrays an input-output relationship. Symbolically,
a production function can be written as:
Y = f (X1,X2,X3,…Xn-1,Xn)
production function
Function showing the highest output that a firm can
produce for every specified combination of inputs.
For simplicity, we will assume that there are two inputs, labor, L and
capital, K.
We can then write the production function as:
Q = F(K,L)
The Production Function
✔ _____________ describe what is
technically feasible when the firm
operates efficiently - that is, when the
firm uses each combination of inputs
as effectively as possible.
✔ The presumption that production is
always technically efficient need not
always hold, but it is reasonable to
expect that profit-seeking firms will
not waste resources
Production functions
Curve showing all possible combinations of
inputs that yield the same output.
Isoquant
(state of the art) is the
method of production used; oftentimes this
is the most efficient process currently
available for a producer.
Level of technology
► Very short run – none of the resources are varied
► Short run –at least one or two of the resources are fixed.
► Long run – all resources are variable.
Classifications of length of time
► Stage I occurs when MPP is
greater than APP.
► Stage II occurs when MPP is
less than APP.
► Stage III occurs when MPP is
less than zero.
Three Stages of Production
measures the responsiveness of output to changes in
input. It is the percentage change in output for every percent change in input.
Further the elasticity of production is derived using the ratio between the marginal
physical products over the average physical product.
The elasticity of production is used to indicate the period in the production
process when diminishing returns is realized.
The point of diminishing returns can be defined to occur where MPP = APP and
ep = 1, and the relevant production interval for a variable input is 0 < ep < 1.
Elasticity of production
states that as units of a
variable input are added to units of one or more fixed inputs, after
a point, each incremental unit of the variable input produces less
and less additional output. As units of the variable input are added
to units of the fixed inputs, the proportions change between fixed
and variable inputs. The law of diminishing returns has sometimes
been referred to as the law of variable proportions.
law of diminishing marginal returns
are the expenses incurred in organizing and
carrying out the production process. In the short run
total costs include fixed and variable costs, while in
the long run all costs are considered variable costs
because all inputs are variable.
Costs
Actual expenses plus depreciation
charges for capital equipment
Accounting Cost
Cost to a firm of utilizing economic
resources in production, including
opportunity cost.
Economic cost
Expenditure that has been made
and cannot be recovered.
Sunk Cost
