Chapter 7 - Producers in the Short Run

Question 1

What are the 4 types of inputs for production?

Answer 1

Outputs from another firm - intermediate products (ex. electricity)
Provided directly by nature (ex. land)
Services of labour
Services of physical capital (ex. machines and facilities)

Question 2

What is the production function?

Answer 2

Shows the max output that can be produced by combining inputs

Question 3

How do you calculate profits?

Answer 3

Total revenue-total costs

Question 4

How do you calculate accounting profits?

Answer 4

Total revenue-explicit costs

Question 5

How do you calculate economic profits?

Answer 5

Total revenue-(explicit+implicit costs)

Question 6

Economic profits is (greater/less) than accounting profits

Answer 6

Less than

Question 7

What are explicit costs?

Answer 7

Labour, rentals, interest payments on debt, purchases

Question 8

What are implicit costs?

Answer 8

Opportunity cost of time and capital

Question 9

When talking about a firm’s profit we always mean _ profit

Answer 9

Economic

Question 10

How do you calculate a firm’s economic profit?

Answer 10

TR(total revenue)-TC(total cost)

Question 11

What is the short run?

Answer 11

Time period where fixed factors can’t be changed

Question 12

What is a fixed factor?

Answer 12

Element of capital, land, management services, supply of skilled labour

Question 13

What are variable factors?

Answer 13

Inputs that aren’t fixed and can be varied in the short run

Question 14

What is the long run?

Answer 14

Time period where all firm’s factors of production can be varied, but its technology is fixed

Question 15

What is the very long run?

Answer 15

Time period where all firm’s factors of production and its technology can be varied

Question 16

What is total product (TP)?

Answer 16

Total produced in a given time

Question 17

What is average product (AP)?

Answer 17

Total product/# of units of labour

Question 18

What is the equation for AP?

Answer 18

AP=TP/L

Question 19

What is marginal product (MP)?

Answer 19

Change in total output that results from using one more unit of a variable factor

Question 20

What is the equation for MP?

Answer 20

change in TP/change in L

Question 21

As more workers are added, each can specialize in one task, and the workers’ MP _

Answer 21

Rises

Question 22

If there is a fixed amount of physical capital, eventually the MP is likely to _

Answer 22

Fall

Question 23

When AP is _, AP=MP

Answer 23

Maximum

Question 24

When AP is _, MP>AP

Answer 24

Increasing

Question 25

When AP is _, MP

Answer 25

Decreasing

Question 26

What does the law of diminishing return state?

Answer 26

If increasing amounts of a variable factor are applied to a given quantity of a fixed factor, the MP of the variable factor declines

Question 27

How do you increase output in the short run?

Answer 27

Combine a variable factor with a given amount of the fixed factor

Question 28

If MP>AP, new AP will be (higher/lower)

Answer 28

Higher

Question 29

What is the equation for total cost (TC)?

Answer 29

Total fixed cost+total variable cost | TC=TFC+TVC

Question 30

What is the equation for average total cost (ATC)?

Answer 30

Avg fixed cost+avg variable cost | ATC=AFC+AVC

Question 31

What is total fixed cost (TFC)?

Answer 31

Costs of the fixed factor, doesn't vary with level of output

Question 32

Give an example of a TFC

Answer 32

Annual cost for renting a factory

Question 33

What is the equation for AFC?

Answer 33

AFC=TFC/Q

Question 34

What is total variable costs (TVC)?

Answer 34

Costs of the variable factors, varies with level of output

Question 35

Give an example of TVC

Answer 35

Labour costs, material costs

Question 36

What is the equation for AVC?

Answer 36

AVC=TVC/Q

Question 37

What is total costs (TC)?

Answer 37

Sum of fixed costs and variable costs

Question 38

What is the equation for ATC?

Answer 38

ATC=TC/Q | ATC=AVC+AFC

Question 39

What is marginal cost (MC)?

Answer 39

Cost of producing each additional unit of output

Question 40

What is the equation for MC?

Answer 40

MC= change in TC/change in Q= change in TVC/change in Q

Question 41

TFC (does/doesn't) change with output

Answer 41

Doesn't

Question 42

AFC declines steadily as output (rises/falls)

Answer 42

Rises

Question 43

What is the shape of ATC? (3)

Answer 43

ATC curve declines Reaches a min Then rises

Question 44

The _ curve is U shaped

Answer 44

ATC

Question 45

MC curve intersects the _ and _ curves at their minimums

Answer 45

ATC, AVC

Question 46

As AP rises, AVC (falls/rises)

Answer 46

Falls

Question 47

As AP falls, AVC (falls/rises)

Answer 47

Rises

Question 48

Each additional worker adds the (same/different) amount to total cost but (same/different) amount to total output

Answer 48

Same, different

Question 49

AVC is at its min when AP reaches its _

Answer 49

Max

Question 50

MC reaches its min when MP reaches its _

Answer 50

Max

Question 51

What is the capacity of the firm?

Answer 51

Level of output at the minimum short-run average total cost (SRATC)

Question 52

Capacity is the largest output that can be produced without encountering (falling/rising) average costs per unit

Answer 52

Rising

Question 53

What is excess capacity?

Answer 53

Firm that produces an output less than the point of minimum average total cost (ATC)

Question 54

In the short run, if the AP curve is rising, the MP curve lies (above/below) the average product curve above this range

Answer 54

Above