CH.8 Flashcards
(11 cards)
on a graph, how do you tell at which level output represents the minimum efficient scale in bookselling?
a) where all diseconomies of scale have been exhausted
a) where all economies of scale have been exhausted
c) where all minimum efficient scale have been exhausted
a) where all economies of scale have been exhausted
aka. the part where the declining slope stops declining/ flattens
Goods used in an economic system for the production of other goods are known as:
a) capital
b) stocks
c) intangibles
d) necessities
a) capital
Capital in an economic sense includes physical structures used for production, machinery, equipment, tools, and inventories. This type of capital is often called physical, or tangible, capital.
Intangible capital includes any investment in the firm that should result in additional output but yet it is not something you can touch or feel but it still provides value to the firm. Examples include investments in training or advertising.
Capital stock is the current market value of all of a firm’s assets and is how economists measure a firm’s physical capital.
Economic capital differs from financial capital. Financial capital is funding or money necessary for business to start and grow.
The law of diminishing returns applies:
a) either in the long run or short run
b) in the short run
c) between the short run and the long run
d) in the long run
b) in the short run
-The law of diminishing returns assumes at least one input is fixed so it applies only in the short run. In the long run all inputs are variable.
The relationship between the inputs used by the firm and the maximum output it can produce is known as the:
a) profit table
b) manufacturing timetable
c) output schedule
d) production function
d) production function
The production function is directly related to the level of technology a firm uses. Firms can opt to use more labour 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.
A(n) __________ occurs when long-run average costs increase with output.
a) constant return to scale
b) diseconomy of scale
c) minimum efficent scale
d) economy of scale
b) diseconomy of scale
At some point costs will begin to increase even in the long run and the firm will no longer enjoy greater efficiency from increasing output.
When a firm is able to lower long-run average costs by increasing output, it is known as an economy of scale. Economies of scale occur in industries with very high fixed costs. Increasing output enables a firm to spread those fixed costs over more and more units and therefore lower the long run average costs of production.
Minimum efficient scale is the minimum level of output a firm must produce in order to reach the lowest long-run average cost.
Technological change can:
a) lead to an upward shift of the LRAC curve
b) lead to a shift to the left of the LRAC curve
c) lead to a downward shift of the LRAC cruve
d) lead toa shift to the right of the LRAC curve
c) lead to a downward shift of the LRAC curve
- We have not seen events that can lead to a shift to the right or to the left of the LRAC curve.
An investment, broadly defined in an economic sense, is:
a) any action that provides a benefit today but is expected to provide costs in the future
b) any action that creates a cost today but is expected to provide benefits in the future
c) a speculative activity that may provide benefits today and in the future
d) a speculatative activity that may create a cost today but is expected to provide benefits in the future
b) any action that creates a cost today but is expected to provide benefits in the future
Investments typically include additions to the firm’s physical capital in order to produce additional output.
The purchase of stocks, bonds, and other financial assets is financial investing and not economic investing. Financial investing typically involves risk-taking that may yield substantial returns.
In economics, productivity is defined as:
a) input produced per unit of some output
b) amount of hours worked per worker, on average
c) output produced per unit of some input
d) amount of hours worked per person, on average
c) output produced per unit of some input
- A measure of labour productivity is the amount of output produced per hour of work.
Which of these costs are affected by the level of output produced?
a) sunk costs
b) fixed costs
c) variable costs
d) information costs
c) variable costs
- Variable costs, specifically defined, are those costs that vary with the number of units produced. Conversely, 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.
Sunk costs are those costs that represent money spent that cannot be recovered. Sunk costs are therefore irrelevant in decision making.
In the long run, firms faced with an increase in the price of an important input, can:
a) negotiate a better price for that input
b) substitute away from that input
c) innovate away from that input
d) create a new input to replace it
b) substitute away from that input
- In the very long run, firms can also innovate away from that input by either finding a new input themselves or by buying a new input from another firm.
If firms were already maximizing profits, they already paid the best price they could for their inputs of production.
The very long run is when:
a) fixed capital becomes variable
b) fixed labour becomes variable
c) both fixed capital and fixed labour becomes variable
d) technology becomes variable
d) technology becomes variable
- Labour can be changed in the short run while capital can change in the long run.
