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ECON1010 > Week 4 > Flashcards

Week 4 Flashcards

(141 cards)

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1
Q

What is technology?

A

Processes firms use to turn inputs into outputs of goods/services

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2
Q

What is technological change?

A

A change in a firm’s ability to produce output with given quantity of inputs.

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3
Q

What is the basis activity of firms?

A

Use inputs to product outputs

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4
Q

What is the result of technological change

A

Producing MORE outputs using the SAME/FEWER inputs

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5
Q

Why can technological change occur?

A
  • Rearrangement of factory floor
  • Change layout of retail store
  • Training program
  • More reliable/efficient equipment
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6
Q

What is the Marginal Product of Labour (MPL)?

A

The additional output a firm produces as a result of hiring 1 more worker

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7
Q

How is Marginal Product of Labour (MPL) calculated?

A

MPL is calculated by determining how much total output increases as each additional worker hired.

i.e. increase in quantity of units produced (outputs)

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8
Q

What is the cause of increased output from MPL?

A
  • Division of labour
  • Specialisation
  • Cos division of tasks btw workers means firms reduce time lost from workers moving btw tasks
  • Cos division of tasks allows more specialisations - as workers become more specialised and therefore more skilled, efficient and quick
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9
Q

What is the Law of Diminishing Returns?

A

At some point, adding more of a variable output to the same amount of fixed input will cause the MP of variable input to decline.

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10
Q

Why do firms experience Law of Diminishing Returns?

A

Cos firms use up all gains from division of labour and specialisation

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11
Q

Can MPL become -ve?

A

Yes - when divison of labour and specialiation becomes too much.

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12
Q

What happens (to output) when MPL is -ve?

A

Level of output declines

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13
Q

What is the Average Product of Labour (APL)/

A

The total output produced by a firm, is divided by the number of workers.

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14
Q

What is MPL?

A

How much total output changes as the number of workers change.

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15
Q

What is APL?

A

The average number of outputs workers produce.

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16
Q

What are the axis for graph showing total output?

A

Y-Axis: Output

X-Axis: Quantity of workers

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17
Q

What happens (initially) when more staff hired?

A

Output increases as more workers hire due to

  • division of labour
  • specialisation
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18
Q

Does output increase at constant rate as more staff hired?

A

No - the increase in input doesn’t occur at constant rate. It initially increases at an increasing rate.

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19
Q

Can MPL fall?

A

Yes MPL can fall, and returns diminish, at a point, when more workers hired if same equipment/machines.

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20
Q

What happens when the point of diminishing returns is reached?

A

Production increases at a decreasing rate

Cos each extra worker causes a smaller increase in production

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21
Q

Summarise MPL trend

A
  • MPL rises initially due to effects of specialisation and division of labour
  • MPL then falls due to effect of diminishing returns
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22
Q

What happens to average PL when MPL > APL?

A

Average PL must be increasing

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23
Q

What happens to average PL when MPL < APL?

A

Average PL must be decreasing

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24
Q

Where is APL when MPL = APL?

A

APL is at its maximum

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25
What is Marginal Cost?
The additional cost to a firm of producing one or more units of a good
26
When are optimal decisions made?
At the margin.
27
How is Marginal Cost (MC) calculated?
Change in Total Cost / Change in Output
28
What is the usual shape of MC curve? Why?
U-shaped MC decreases, as first, MC then later increases
29
When MPL increases, what happens to the MC of output?
MC decreases
30
When MPL decreases, what happens to the MC of output?
MC increases
31
What happens to ATC when MC < ATC?
ATC is decreasing
32
What happens to ATC when MC > ATC?
ATC is increasing
33
Where is ATC when MC = ATC?
ATC is at its lowest point
34
Are all costs variable in the long run?
Yes, all costs are variable in the long run. | There are no fixed costs in the long run.
35
In the long run, TC = VC, True or False?
True Cos all costs are variable in the long run.
36
In the long run, ATC = AVC, True or False?
True Cos all costs are variable in the long run.
37
What is the long-run average cost (curve)?
A curve showing the LOWEST COST at which a firm can produce a given quantity of output in the long run when no inputs are fixed.
38
What do economies of scale exist?
When a firm's long-run average costs fall as it increases its scale of production and the quantity of output it produces
39
What is the short-run average cost (curve)?
A curve that represents the cost that a firm faces when some inputs the firm uses in fixed
40
Why are long-run average cost (curve) used for planning?
Cos they show the effect on cost of expanding output.
41
Why do firms encounter economies of scale?
- firm's technology makes its possible to increase production with a smaller proportional increase in input - workers/managers become more specialised, therefore becoming more productive as output expands - large firms can purchase inputs at a lower cost than smaller firms... as firms expand, its bargaining power with suppliers increases and average costs reduce - as firms expand it can borrow money more cheaply
42
Do economies of scale continue forever?
No
43
What is a key feature of a long run AC curve?
AC curve generally has a flat segment stretching over the substantial rage of output - which represents CONSTANT RETURNS TO SCALE
44
When do constant returns to scale exist?
Exist when a firm's long-run AC remain unchanged as it increases its scale of production and quantity of output it produces
45
What do firms need as the scale of production and quantity of output?
To increase inputs proportionally
46
What is the minimum efficient scale?
The level of output at which all economies of scale are exhausted.
47
When do diseconomies of scale exist?
Exist when a firm's long-run AC increases as it increases the scale of production and quantity of output it produces
48
What do firms expand to over time?
As large as MINIMUM EFFICIENT SCALE
49
What do firms not expand to over time?
Diseconomies of scale
50
Why does the short-run MC curve slope upwards?
Cos of the law of diminishing returns
51
Why does the long-run MC curve slope upwards?
Cos of the diseconomies of scale
52
What is the formula for TOTAL COST?
Sum of all costs of inputs in the production
53
What are FIXED COSTS?
Costs that remain the constant (as output changes)
54
What are VARIABLE COSTS?
Costs that change as output changes
55
What is MARGINAL COST?
The additional cost of producing one more unit
56
What is the formula for AVERAGE TOTAL COST?
Total Cost / Output Quantity
57
What is the formula for AVERAGE FIXED COST?
Total Fixed Cost / Output Quantity
58
What is the formula for AVERAGE VARIABLE COST?
Total Variable Cost / Output Quantity
59
What is total productivity (in short term)?
Total number of units/outputs produced with number of employees Y-Axis - Units produced X-Axis - Staff hired
60
Why does an increase in productivity not occur at a constant rate (in short term)?
Because of specialisation and division of labour. - output increases at an increasing rate because every additional labour produced more than previous worker
61
What is marginal productivity (in short term)?
The additional output is produced by hiring an additional worker. - MP rises initially due to the specialisation of each new labour, - MP then starts to decline due to the effects of the diminishing returns
62
What is average productivity (in short term)?
The average productivity curve is the average productivity of the marginal productivity of the labour.
63
What does the slope of the AP curve depend upon (in short term)?
The slope of the MP curve.
64
When is profit maximised?
When production cost is low and productivity is high
65
What is SHORT RUN?
Period of time during which at least one input is fixed. Up to 1 year.
66
What is LONG RUN?
Period of time long enough to allow a firm to - vary all inputs - adopt new tech - change size of operation Over one year
67
What is the TOTAL COSTS?
The costs of all inputs a firm uses in the production
68
What are VARIABLE COSTS?
The costs which change as the quantity of output changes
69
What is FIXED COSTS?
The costs that remain constant as the quantity of output changes
70
What is the formula for total costs?
TC = TFC + TVC
71
What is OPPORTUNITY COST?
The highest valued alternative that must be given up to engage in an activity
72
What is EXPLICIT COST?
A cost that involves spending money
73
What is IMPLICIT COST?
A non-monetary opportunity cost
74
What is SHORT RUN?
Period of time during which at least one input is fixed. Up to 1 year.
75
What is TOTAL COST?
The cost of all factors of production used
76
What is MARGINAL COST?
The change to TC from producing one more unit/good
77
What is AVERAGE TOTAL COST?
The total cost divided by quantity
78
What is TOTAL VARIABLE COST?
The cost of variable factors of production used by a firm To change its output in the SHORT RUN a firm must change the quantity of labour/variable components... So, TVC changes as output changes
79
What is the formula for marginal cost?
MC = change in TC / change in Q
80
MPL increases, what is the impact on MC?
MC of production decreases
81
MPL decreases, what is the impact on MC?
MC of production increases
82
What is the shape of the MC curve? Why?
U-Shaped cos MC decreases then increases.
83
What is the formula for Average Total Cost?
ATC = TC / Q
84
What is impact on ATC if MC < ATC?
ATC will decrease
85
What is impact on ATC if MC > ATC?
ATC will increase
86
What curve is MC linked to? Why?
MPL curve If MPL increases then MC decreases If MPL is at its MAX, MC is at its MIN
87
What curve is AC linked to? Why?
AP curve If AP increases then AC decreases If AP is at its MAX, then AC is at its MIN
88
In the long run are the resources used by a firm fixed, variable or mixed?
All variable in the long run, so all costs are variable in the long run
89
In the long run are the resources used by a firm fixed, variable or mixed?
All variable in the long run, so all costs are variable in the long run
90
What is the LONG RUN AVERAGE COST CURVE?
A curve showing the lowest cost at which the firm is able to produce a given quantity of output in the long run, when no inputs are fixed
91
What are ECONOMIES OF SCALE?
These exist when a firm's long-run average costs fall as it increases its scale of production and the quantity of output it produces
92
What is CONSTANT RETURNS TO SCALE?
These exist when a firm's long run average costs remain unchanged at it increases its scale of production and the quantity of output it produces
93
What is MINIMUM EFFICIENT SCALE?
The level of output at which all economies of scale have been exhausted - it is the minimum point on the long-run average cost curve
94
What are DISECONOMIES OF SCALE?
These exist when a firms long run average costs rises as increases its scale of production and the quantity of output it produces
95
What is SHORT RUN?
period of time < 1 year in short run, fixed costs don't change with quantity of output but variable costs changes with quantity of output
96
What are fixed costs?
Costs that don't change with output
97
What are variable costs?
Costs that change with output
98
What is LONG RUN?
period of time > 1 year life is more flexible 'cost start to plan no fixed factors of production all inputs are variable
99
What is short run costs based on ?
Law of diminishing returns
100
What is long run costs based on ?
Economies and diseconomies of scale
101
What is Marginal Cost?
The extra cost of producing an extra unit
102
Formula for AVC
TVC / Q
103
Formula for AFC
TFC / Q
104
Formula for TC
TFC + TVC
105
Formula for ATC
AVC + AFC or (FC/Q) + (VC/Q)
106
What is Marginal Product
MP is the extract product of employing 1 more worker
107
Formula for MP
Change in total product / change in labour
108
What is Marginal Cost?
Extra cost of producing 1 more unit of output
109
Formular for MC
Change in total cost / change in output
110
What happens to MP when AP declines? Why?
MP declines. Cos AP follows MP
111
What are (3) stages of law of diminishing returns?
1. MP increases, TP increases at an increasing rate. 2. MP decreases (but still +ve), TP increases at a slower rate 3. MP is -ve, TP decreases
112
When MP = 0, what is TP?
At its MAX
113
What is the law of diminishing returns?
As more variable factors are added to a fixed factor, MP will eventually fall. - early stage of production, as labour is added, specialisation occurs and productivity increases. - eventually, as more labour is added (but same fixed inputs) then productivity falls (as same equip), so MP will fall... law of diminishing returns kicks in. - ultimately as more workers are added (but same fixed inputs) then MP will be -ve (due to overcrowding)
114
What does the law of diminishing returns relate to?
Variable Inputs | MP
115
Define law of diminishing returns
at some point adding more variable inputs to given fixed input will cause the MP to variable input to decline
116
What is the relationship between cost and productivity?
Inverse - as Productivity increases, Cost decreases so. .. MP up, MC down and AP up, AVC down - as Cost increases, Productivity decreases so. .. MP down, MC up and AP down, AVC up
117
What happens to the average when marginal > average?
Average is pulled up
118
What happens to the average when marginal < average?
Average is pulled down
119
Where is MC when productivity (MP) is at its MAX?
MIN
120
Where is CC when productivity (AP) is at its MAX?
MIN
121
What is MC curve linked to?
MP Curve If MP increases, MC decreases If MP = Max, MC = Min
122
What is AC curve linked to?
AP Curve If AP increases, AC decreases If AP = Max, AC = Min
123
Formula for AFC What does this mean for AFC? Describe the curve
TFC / Q So, as Q increases, AFC decreased So, the curve is continually decreasing
124
Formula for AVC Describe curve
TVC / Q U-shaped
125
Formula for ATC Describe curve
AFC + AVC U-shaped
126
What is the distance btw ATC and AVC?
AFC
127
Where does MC interest ATC?
At ATC's MIN
128
Formula for AP
TP / L
129
Formular for MP
change in TP / change in labour
130
Formula for TC
TFC + TVC
131
Formula for AVC
TVC / Q
132
Formula for AFC
TFC / Q
133
Formula for ATC
TC / Q AFC + AVC
134
Formula for MC
change in TC / change in Q change in TVC / change in Q
135
What are economies of scale?
Costs fall as output increases i.e. increasing returns to scale
136
What are constant returns to scale?
Cost remains same (ATC)
137
What are diseconomies of scale?
Cost rises as output increases
138
What causes economies of scale?
- more specialisation - more efficient equip/tech meaning productivity up and lower unit cost - bigger companies, have more bargaining power, so can purchase inputs at lower prices - ability to borrow money more cheaply
139
What occurs when quantity increases and AC decreases?
Economies of scale
140
What occurs when quantity increases and AC remains constant?
Constant returns to scale
141
What occurs when quantity increases and AC increases?
Diseconomies of scale

ECON1010 (5 decks)

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