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Questions and Answers
A firm is currently producing at a point where its marginal product of labor (MP_L) is decreasing but still positive. What does this imply about the total product (TP)?
A firm is currently producing at a point where its marginal product of labor (MP_L) is decreasing but still positive. What does this imply about the total product (TP)?
- TP is increasing at an increasing rate.
- TP is decreasing.
- TP is increasing at a decreasing rate. (correct)
- TP is constant.
What is the relationship between marginal cost (MC) and average total cost (ATC) when ATC is at its minimum?
What is the relationship between marginal cost (MC) and average total cost (ATC) when ATC is at its minimum?
- MC is less than ATC.
- MC is equal to ATC. (correct)
- There is no relationship between MC and ATC.
- MC is greater than ATC.
In the short run, a firm's fixed costs are $1000. Its total costs are $3000 when it produces 100 units. What is the firm's average variable cost (AVC) at this production level?
In the short run, a firm's fixed costs are $1000. Its total costs are $3000 when it produces 100 units. What is the firm's average variable cost (AVC) at this production level?
- \$40
- \$30
- \$10
- \$20 (correct)
Which of the following best describes the law of diminishing marginal returns?
Which of the following best describes the law of diminishing marginal returns?
A firm is producing where the marginal product of labor (MP_L) divided by the wage rate (w) is greater than the marginal product of capital (MP_K) divided by the rental rate of capital (r). To minimize costs, the firm should:
A firm is producing where the marginal product of labor (MP_L) divided by the wage rate (w) is greater than the marginal product of capital (MP_K) divided by the rental rate of capital (r). To minimize costs, the firm should:
What does an isoquant represent?
What does an isoquant represent?
How does the expansion path relate to the long-run total cost (LRTC) curve?
How does the expansion path relate to the long-run total cost (LRTC) curve?
In the short run, if average variable cost (AVC) is decreasing as output increases, what must be true about marginal cost (MC)?
In the short run, if average variable cost (AVC) is decreasing as output increases, what must be true about marginal cost (MC)?
A firm's total cost function is given by $TC = 100 + 5Q + Q^2$, where Q is the quantity of output. What is the firm's marginal cost (MC) function?
A firm's total cost function is given by $TC = 100 + 5Q + Q^2$, where Q is the quantity of output. What is the firm's marginal cost (MC) function?
What is the main difference between short-run and long-run cost analysis?
What is the main difference between short-run and long-run cost analysis?
Flashcards
Total Product (TP)
Total Product (TP)
Total quantity of output a firm produces in a time period.
Marginal Product (MP)
Marginal Product (MP)
The change in output from employing one more unit of an input.
Average Product (AP)
Average Product (AP)
Total product divided by the number of input units used.
Law of Diminishing Marginal Returns
Law of Diminishing Marginal Returns
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Fixed Cost (FC)
Fixed Cost (FC)
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Variable Cost (VC)
Variable Cost (VC)
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Total Cost (TC)
Total Cost (TC)
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Average Total Cost (ATC)
Average Total Cost (ATC)
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Average Variable Cost (AVC)
Average Variable Cost (AVC)
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Marginal Cost (MC)
Marginal Cost (MC)
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Study Notes
- Business economics studies financial and organizational factors affecting business corporations.
Short-Run Production Function
- Total product (TP) is the total quantity of output a firm produces during a period of time.
- Marginal product (MP) is the change in output resulting from employing one more unit of a particular input such as labor.
- Average product (AP) is the total product divided by the number of units of a particular input used.
- The law of diminishing marginal returns states that at some point, adding an additional factor of production results in smaller increases in output.
Costs
- Fixed cost (FC) is a cost that does not vary with the level of output in the short run.
- Variable cost (VC) is a cost that varies with the level of output in the short run.
- Total cost (TC) is the sum of total fixed cost and total variable cost, represented as TC = FC + VC.
- Average total cost (ATC) is total cost divided by the quantity of output, represented as ATC = TC/Q.
- Average variable cost (AVC) is variable cost divided by the quantity of output, represented as AVC = VC/Q.
- Marginal cost (MC) is the change in total cost resulting from producing one more unit of output.
Relationships
- Marginal cost intersects average total cost and average variable cost at their minimum points.
- Short-run cost curves illustrate how costs change with output levels.
Long Run
- An isoquant is a curve illustrating all combinations of inputs that yield a specific quantity of output.
- An isocost line shows all combinations of inputs that cost the same total amount.
- Cost-minimizing condition is achieved when the ratio of the marginal product of labor to the wage rate equals the ratio of the marginal product of capital to the rental rate of capital, shown as MP_L/w = MP_K/r.
- The expansion path is a curve that illustrates the cost-minimizing input combinations for each level of output.
- Long-run total cost (LRTC) is the total cost of production when a firm can vary all its inputs
- Long-run average cost (LRAC) is the total cost per unit of output when all inputs are variable.
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