Week 8

Question 1

what is technology

Answer 1

the processes a firm uses to turn inputs into outputs

Question 2

what does technology depend on

Answer 2

factors including skill of staff and managers and quality of equipment

Question 3

what happens when a firm experiences technological change

Answer 3

it is able to produce more output using the same inputs or the same input using fewer outputs

Question 4

where does technological change come from

Answer 4

training workers and management purchasing new equipment

Question 5

what do firms do when analysing their level of production and costs

Answer 5

seperate the time period into the short run and long run

Question 6

what is the short run

Answer 6

the short run is when at least one of the firms inputs is fixed. in particular it’s technology and physical capital

Question 7

what is the long run

Answer 7

the long run is when the firm can vary all of its inputs and can adopt new technology or increase and decrease the size of its physical capital

Question 8

what are total costs

Answer 8

the sum of fixed and variable costs

Question 9

what are variable costs

Answer 9

cost of variable inputs or costs that change as the quantity of output changes

Question 10

what are fixed costs

Answer 10

costs of fixed inputs or costs that remain constant as quantity of output changes

Question 11

what are the 2 types of opportunity costs

Answer 11

implicit or explicit

Question 12

what is an implicit opportunity cost

Answer 12

cost that is non monetary like a forgone salary

Question 13

what is an explicit opportunity cost

Answer 13

cost that is monetary based

Question 14

what are accounting costs

Answer 14

explicit costs

Question 15

what are economic costs

Answer 15

both explicit and implicit costs

Question 16

what is the production function

Answer 16

the relationship between inputs employed by a firm and the maximum output it can produce with those inputs

Question 17

what does a production function also show

Answer 17

a firms technology because that is the process it uses to turn input into output

Question 18

how can total costs of producing a given quantity be determined from the production function

Answer 18

how many machines and workers required and the cost of both for that given quantity

Question 19

how can average total cost be determined

Answer 19

by dividing the total cost by output produced

Question 20

what shape is the ATC curve

Answer 20

U shaped

Question 21

what is the marginal product of labour

Answer 21

the additional output produced by a firm as a result of having hired one more worker

Question 22

how is the MPL calculated

Answer 22

determining how much total output increases as each new worker is hired

Question 23

how is the MPL increased

Answer 23

the MPL increases due to specialisation and division of labour

Question 24

does the MPL continually increase

Answer 24

no due to the law of diminishing returns it begins to decline

Question 25

what is the law of diminishing returns

Answer 25

adding more of a variable input to the same amount of a fixed input will cause the MP to decline

Question 26

can the MPL become negative

Answer 26

yes if too many workers are hired which will in turn decrease total output

Question 27

what is the average product of labour

Answer 27

how much workers produce on average

Question 28

how is the APL determined

Answer 28

total output divided by quantity of workers

Question 29

what is the relationship between MPL and APL

Answer 29

the relationship between MPL and APL is that the APL is the average of the sum of each workers MPL

Question 30

what happens when the MPL is greater then the APL

Answer 30

the APL is increasing

Question 31

what happens when the MPL is less the APL

Answer 31

the APL is decreasing

Question 32

when does the MPL equal the APL

Answer 32

when the APL is at it's max

Question 33

what does technology determine

Answer 33

the value of the MPL and the APL so in turn also the firms costs

Question 34

what is marginal cost

Answer 34

the change in a firms total cost from producing one more unit of a good or service

Question 35

how is marginal cost calculated

Answer 35

change in TC/ change in Q

Question 36

what is the relationship between MPL and MC

Answer 36

when the MPL is rising MC is falling while the MPL if falling MC is rising making the MC curve a U shape

Question 37

what is the relationship between MC and ATC

Answer 37

as long as MC is below ATC, the ATC will fall. when MC is above ATC will rise.

Question 38

when will MC = ATC

Answer 38

when ATC is at its lowest point

Question 39

what shape is ATC

Answer 39

U shaped

Question 40

how can AFC and AVC be calculated

Answer 40

dividing respective costs by total output

Question 41

are the MC, ATC and AVC curves all u shaped

Answer 41

yes and and the MC intersects the AVC and ATC at its lowest point

Question 42

as output increases does AFC get smaller and smaller

Answer 42

yes it does because output is being divided into something that stays constant

Question 43

as output increases the difference between ATC and AVC decreases

Answer 43

yes because the difference between AVC and ATC is AFC which shrinks as output increases

Question 44

does the distinction made between fixed and variable costs in the short run apply in the long run

Answer 44

no because in the long run all costs are variable

Question 45

what does TC and ATC equal in the long run

Answer 45

TC = VC and ATC = AVC

Question 46

what do managers of succesful companies do

Answer 46

simultaneously consider how they can most profitably run their current store and consider whether to become larger or shorter in the long run

Question 47

what does the long run average cost curve show

Answer 47

the lowest cost at which the firm is able to produce a given level of output in the long run when no inputs are fixed

Question 48

what can firms experience in the long run

Answer 48

economies of scale which means the firms long run average costs fall as it increases quantity of output

Question 49

why do firms achieve economies of scale

Answer 49

better technology, more specialised staff, better at barganing with suppliers

Question 50

do economies of scale last forever

Answer 50

no because the LRATC curve has a flat segment where selling a different amounts of output can result in same average cost

Question 51

what is being on this flat segment called

Answer 51

constant returns to scale where as output rises LRATC remains the same

Question 52

what is the level of output where all economies of scale are exhausted

Answer 52

the minimum efficient scale which is where the flat segment begins

Question 53

what happens when firms sell too much

Answer 53

have diseconomies of scale where as output rises so does LRATC