Chapter 5 - Supply Decisions

Question 1

What is supply?

Answer 1

the ABILITY and WILLINGNESS to sell/produce specific quantities of a good at alternative prices in a given time period

Question 2

What is production function?

Answer 2

The technological relationship expressing the maximum quantity of a good attainable from different combinations of factor inputs

Question 3

What does production function tell us?

Answer 3

The maximum amount of good producible (output) from varying amounts of factor inputs

Question 4

The rate of output depends on how many ____are used

Answer 4

inputs

Question 5

What is efficiency?

Answer 5

Achieving the maximum output attainable from given inputs

Question 6

Explain the graph of production function

Answer 6

Y axis: output
X axis: input
graph is upward sloping. drastic increases, then steady, then decrease

Question 7

Producing on a point on the production function indicates…?

Answer 7

you are being efficient. producing the most that can be produced

Question 8

“Marginal”

Answer 8

One additiona

Question 9

What is marginal physical product?

Answer 9

Change in total output associated with ONE ADDITIONAL unit of input

Question 10

What is the formula for calculating marginal physical product

Answer 10

MPP=change in total output/change in input quantity

Question 11

What is the Law of Diminishing Returns?

Answer 11

Diminishing marginal physical product (mpp) - additional units of inputs (resources) are less valuable to the firm

Question 12

Marginal physical product ______ at a _______ rate

Answer 12

increases at a decreasing rate

Question 13

Why does MPP decline?

Answer 13

As more labor is hired, each unit of labor has less capital and land to work with

Question 14

if too much labor is added to a _____ level of ______, MPP may become ______

Answer 14

if too much labor is added to a FIXED level of CAPITAL, MPP may become NEGATIVE

Question 15

Production function tells us how much a firm _____ produce but not how much it will ____ to produce.

Answer 15

COULD, WANT

Question 16

The most desired rate of output is the one that _________________

Answer 16

MAXIMIZES TOTAL PROFT

Question 17

How to calculate total proft?

Answer 17

Total revenue - Total Cost

Question 18

How to calculate total revenue?

Answer 18

Quantity sold x price

Question 19

What is total cost?

Answer 19

Market value of all resources used to produce a good or service

Question 20

What are fixed costs?

Answer 20

Costs of production that DO NOT CHANGE with the total rate of output.

Question 21

Will fixed costs still exist if a firm does not produce anything?

Answer 21

YES

Question 22

What are variable costs?

Answer 22

Costs of production that change when the rate of output is altered

Question 23

Any short run change in total costs is a result of…?

Answer 23

Changes in variable costs

Question 24

What are the 2 costs of production?

Answer 24

Fixed costs and variable vosts

Question 25

Explain the cost of production graph

Answer 25

Y axis: production costs
X axis: rate of output
total cost line and fixed cost line
output increases at a decreasing rate
FC is a flat line
Area between FC line and TC line = variable costs

Question 26

On the cost of production graph, where does the TOTAL COST LINE begin?

Answer 26

At the fixed cost

Question 27

How to calculate average total cost?

Answer 27

total cost (fc+vc)/total output

Question 28

ATC is a _____ shaped curve

Answer 28

U

Question 29

What is marginal cost and how do you calculate it?

Answer 29

The change in total cost when one more unit of output is produced.
MC=change in total cost/change in total output

Question 30

Explain the graph of marginal cost

Answer 30

Y axis: marginal cost
X axis: rate of output
VC takes over and marginal costs skyrocket while output will remain the same

Question 31

What is the goal of a firm?

Answer 31

to maximize total proft