Unit 6 pt 2 Flashcards
(21 cards)
When would one expect to observe a diminishing marginal product of labour?
when crowded factory space reduces the productivity of new workers
If a firm wants to capitalize on economies of scale, it be able to do so
by assigning limited tasks to employees, so they can master those tasks
When do constant returns to scale occur?
when long-run ATC are constant as output increases
Why are long-run average-total-cost curves often U-shaped?
because of increasing specialization of workers at low levels of production and increasing coordination problems at high levels of production
When do diseconomies of scale occur?
when long-run average total costs rise as output increases
What must be happening when marginal cost is greater than average total cost?
Average total cost is rising
When do economies of scale arise?
when workers are able to specialize in a particular task
What explains the relationship among different cost functions?
The marginal cost of the fifth unit of output equals the total variable cost of five units minus the total variable cost of four units
Economic profit is equal to
total revenue minus the opportunity cost of producing goods and services.
Which of the following must necessarily occur as the quantity of output increases?
AFC must fall
When a firm is making a profit-maximizing production decision, which of the following principles of economics is likely to be most important to the firm’s decision?
The cost of something is what you give up to get it
What does marginal cost tell us?
the amount by which total cost rises when output is increased by one unit
What relationship does a production function measure?
inputs and quantity of output
What is the relationship between accounting profit and economic profit?
accounting profit = economic profit + implicit costs
The marginal product of labour can be defined as
change in quantity of output divided by change in quantity of labour.
Marginal cost increases as the quantity of output increases. What property does this reflect?
diminishing marginal product
When marginal cost exceeds average total cost, we know that
average total cost must be rising.
What is the efficient scale of a firm?
the quantity of output that minimizes average total cost
What does diminishing marginal product imply?
The marginal product of an extra worker is less than the previous worker’s marginal product
what best explains why ATC falls and then rises in the short run?
falling AFC and diminishing marginal returns
what is a constant return to scale?
Constant returns to scale occur when a firm increases all inputs by a certain proportion, and output increases by the same proportion.
