Module 6 Flashcards
(118 cards)
1
Q
an entity concerned with the purchase and employment of resources in the production of various goods and services.
A
firm
2
Q
There are three kinds of firm
A
TRUE
3
Q
Easy to set up and organize viz. partnership and corporation
A
Sole proprietorship
4
Q
Sole proprietorship has limited liability
A
FALSE
5
Q
All profits and all costs are assumed by the _____
A
owner
6
Q
Easy to organizeand less legal expense and paperwork viz.
corporation
A
Partnership
7
Q
Greater specialization possible
A
Partnership
8
Q
Partnership is dissolved when?
A
partner dies
9
Q
Most dominant form of business enterprise.
A
Corporation
10
Q
What form has the most effective for raising financial capital?
A
Corporation
11
Q
When any of its owners dies, corporation is dissolved
A
FALSE
12
Q
Principal-agent problem, WHICH ONE WANT A MAXIMUM PROFIT
A
Principal
13
Q
Managers may go for power and prestige
A
Agent
14
Q
Substantial legal expense in setting up
A
Corporation
15
Q
Partnership is easy to set up
A
FALSE, only easy to organize
16
Q
is a physical relationship between the inputs of a firm and its output of goods and services, ceteris paribus.
A
Production function
17
Q
There is economic in production function
A
FALSE, purely technological relationship
18
Q
resources that contribute to the
production of a good/service
A
Inputs
19
Q
Inputs can be only variable, not fixed.
A
FALSE
20
Q
resources that are used at a CONSTANT amount in the production of a commodity.
A
fixed
21
Q
resources that can CHANGE in quantity depending on the level of output being produced.
A
VARIABLE
22
Q
Fixed inputs will exist over LONG planning period
A
false; SHORT
23
Q
Over a longer planning period, the distinction between fixed
and variable inputs WILL NOT disappears.
A
FALSE
24
Q
All inputs are variable in the long run
A
True
25
total amount of output produced by the firm
TOTAL PRODUCT (TP / Q)
26
Total product is measured in physical units (e.g. kg)
True
27
The change in output for a one unit change in the quantity of an input, holding all other inputs constant.
Marginal product (MP)
28
Formula for MP
ΔTP / ΔL or ΔQ / ΔL
29
marginal product initially increases, reaches a maximum level, and beyond this point, the marginal product declines, reaches zero, and subsequently becomes negative.
principle of diminishing marginal
product
30
What if principle of diminishing marginal product?
"as the use of an input
increases (with other inputs fixed), a point will eventually be reached at which the resulting
additions to output decrease"
31
MP is the slope of the line that is tangent to the TP curve
TRUE
32
Slope of the line = TU
FALSE ; MP
33
MP = 0
Maximum?
Maximum TP
34
measures the total output per unit of input used
Average product (AP)
35
Average product (AP) Formula
TP / L
36
slope of the line from the origin to a point in the curve is a measure OF THE ____
Average
37
d < c > a
TRUE
38
MP > AP ; AP is _____
rising
39
MP < AP ; AP is at rising
FALSE; FALLLINGG
40
MP = AP
AP at Maximum
41
How many stages of production does each firm face ?
3
42
At what station, AP is increasing so MP > AP
Stage 1
43
Stop line of stage 1
MP = AP ; AP is at maximum point
44
When does stage 2 starts?
when AP BEGINS TO DECLINE
45
Q continues to increase, although at a INCREASING rate, and in fact reaches a maximum
FALSE ; decreasing
46
at stage 2, MP increases
FALSE ; declines !!
47
Stage 2 stop line
MP = 0
48
Stage 3 starts when ?
starts where the MPL has turned negative
49
TP, AP and MP curves are decreasing at stage 3?
TRUE
50
What stage does firm will produce?
Stage 2
51
AT WHAT STAGE
MP > AP ; Ap increasing
stage 1
52
AT WHAT STAGE
MP
Stage 2
53
AT WHAT STAGE
MP<0
AP decreasing
Stage 3
54
economic cost of an input used
in a production process is the value of output sacrificed
elsewhere.
Opportunity Cost Principle
55
opportunity cost of an input is the value of foregone income in best alternative employment
TRUE
56
costs of production include those items which are ___ AND ___
Implicit and Explicit
57
payments made by one entity/individual to another - “out of pocket” costs
Explicit
58
wages of employees, electricity bills
Explicit
59
imputed costs of self-owned or self employed resources based on their opportunity costs; no actual payment made from one entity to another
Implicit
60
use of resources (time, car, house, etc.) of the owner or his/her relatives for business-related activities
Implicit
61
TFC
total fixed cost
62
TVC
Total variable Cost
63
Formula of TC
TVC + TFC
64
Formula of AFC
TFC / Q
65
Formula of AVC
TVC / Q
66
Formula of AC
AFC + AVC
67
Formula of MC
ΔTC / ΔQ
68
For long run, TFC = TVC
False
69
For long run, ____ = AFC = 0
TFC
70
For long run, TVC = AFC
FALSE ; TVC = TC
71
AVC = AC
TRUE
72
sunk cost or overhead cost
TFC
73
component of cost is independent of the level of output produced
Total fixed cost
74
payments or rent for land, buildings and machinery
TFC
75
Component of cost that changes with the level of output
tvc
76
TVC has inverse relationship with Q
false ; DIRECT
77
purchases of raw materials, payments to workers, electricity
bills, fuel and power costs
TVC
78
TVC INCREASES, Q ?
increases
79
TC
sum of total fixed cost and total variable cost
80
Q increases; TC ?
increases
81
TVC = 0 if Q = 0
TRUE
82
This declines as Q increases.
AFC
83
for TFC > 0, it never becomes zero
true
84
Which graph has a u-shaped?
AVC, AC, MC
85
As Q increases, AVC declines initially and then rises.
TRUE
86
Alternative formula FOR AC
AFC + AC ; TC / Q
87
* AC is larger than AVC
TRUE
88
What is the reason why the gap between AC and AVC narrows as Q increases
Falling AFC
89
Shows the change in total cost for a unit change in output
MC
90
MC intersects the AVC and AC
curves at their lowest points
TRue
91
MC intersects the AC curve
first
FALSE : AVC
92
AC is falling if MC < AC
true
93
AVC is falling if MC < AVC and rising if MC > AVC
TRUE
94
FRMULA FOR LAC
LTC / Q
95
an envelop curve of all possible plant sizeS
long run average costs (LAC)
96
planning curve
LAC
97
traces the lowest average cost of producing each level of output
LAC curve
98
LAC is U-shaped because of?
Economies of Scale
Diseconomies of Scale
99
In Economies of Scale, Long run average cost decreases as output increases
TRUE
100
LAC has inverse relationship with output
true
101
Reasons for economies of scale
technological factors, specialization
102
What scale, long run average cost increases as output increases
Diseconomies of Scale
103
problems with management
as firm becomes bigger – i.e., becomes costly, unwieldy
Reason for diseconomies of scale
104
Reasons why Economies of Scale exists
Multi-stage production, Organisational economies, Spreading overheads
105
A large factory may be able to take a product through several stages of its manufacture, saving time and cost
Multi-stage production
106
In a large firm, individual plants can specialise in particular
functions
Organisational economies
107
Some expenditures are only economic if the firm is large,
e.g. R&D, marketing, etc
Spreading overheads
108
Reasons for ‘Diseconomies of scale’
Management problems, Worker alienation, Production-line processes and interdependencies
109
Makes the firm larger and more complex, resulting in inefficiency
Management problems
110
Workers may feel alienated resulting in poor motivation.
Worker alienation
111
Industrial relations may deteriorate resulting in complex
interrelationships and inefficiency.
Worker alienation
112
Mass production may become too complex to handle, resulting in greater disruption, hold-ups and inefficiency
Production-line processes and interdependencies
113
e.g. inability to get enough input supplies
Production-line processes and interdependencies
114
Long run marginal cost (LMC) curve INTERSECT AT WHAT POINT OF LAC?
Minimum point
114
The firm obtains a production advantage from producing two products (or more) at lower cost than separate firms producing each product.
Economies scale
115
Production facility used to make one product can also be used to make another
ES ; TRUE
116
People trained to produce one product (e.g. engineers, designers) can use their expertise in the production of another product
ES
117
By-products of one product could be useful in the production of another product (e.g. oil refineries, chemical plants)
TRUE
