ECON1101: Chapter 7 Flashcards

Questions and Answers

What does the term 'constant returns to scale' describe?

Expanding all inputs does not change the average cost of production.

The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.

economies of scale

____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.

Diminishing marginal returns

In order to determine the average variable cost, the firm's variable costs are divided by _______________________

the quantity of output Signup and view all the answers

Approximately what percentage of the US labor force is employed by firms that have fewer than 100 employees?

35% Signup and view all the answers

In the US economy, nearly half of all the workers employed by private firms work at how many large firms that employ more than 500 workers?

18,000 Signup and view all the answers

A situation known as _____________________ occurs when all production inputs are allowed to expand, but that expansion does not result in much of a change in the average cost of production.

constant returns to scale Signup and view all the answers

_____________________ help to explain why every economy, as it develops, has an increasing proportion of its population living in urban areas.

Agglomeration factors Signup and view all the answers

______________ include all of the costs of production that increase with the quantity produced.

Variable Signup and view all the answers

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.

total revenue Signup and view all the answers

The future of cities in the United States and in other countries will be determined by their ability to benefit from the _ and to minimize or counterbalance the ______.

economies of agglomeration; corresponding diseconomies Signup and view all the answers

What does the changing slope of the total cost curve for GoodieCookie Co. reflect?

decreasing marginal costs. Signup and view all the answers

In microeconomics, the term _____________________ is synonymous with economies of scale.

increasing returns to scale Signup and view all the answers

Which of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business?

physical space for the gallery Signup and view all the answers

In microeconomics, the term ___________________ is synonymous with decreasing returns of scale.

diseconomies of scale Signup and view all the answers

In order to reduce the harmful effects of recession and carbon emissions, the government provided tax incentives for manufacturing firms to ___________________ that provide alternative, more efficient methods of combining inputs to produce output.

acquire energy efficient production technologies Signup and view all the answers

What is a situation called where the level of output, scale and average costs are all rising?

both a and b Signup and view all the answers

The marginal cost curve is generally because diminishing marginal returns implies that additional units are __________.

upward-sloping; more costly to produce Signup and view all the answers

A firm's _ consist of expenditures that must be made before production starts that typically, over the short run, _____ regardless of the level of production.

fixed costs; do not change Signup and view all the answers

In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity.

either total cost or variable cost Signup and view all the answers

What was I'MaGadgetCo's average fixed cost to produce 9,000 widgets?

$1.00 Signup and view all the answers

Mindy's company manufactures rubber balls used by elementary schools for playground activities. Which of the following statements is correct?

A = 20; E = 5 Signup and view all the answers

Based on the information illustrated in the graph, which of the following is correct?

the transition point between where MC is pulling down and pulling up AC always occurs at the minimum point of the AC curve Signup and view all the answers

If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.

decreasing returns to scale Signup and view all the answers

Economies of scale may arise from all but one of the following. Which one is it?

government economic subsidies protect firms from competition to avoid losses Signup and view all the answers

Study Notes

Production Costs and Returns to Scale

Constant Returns to Scale: Inputs can be expanded without affecting average production costs.
Economies of Scale: Output increases while average production costs decrease.
Diminishing Marginal Returns: Each additional input yields a smaller increase in output.

Variable and Fixed Costs

Average Variable Cost Calculation: Total variable costs divided by quantity of output.
Variable Costs: Costs that rise with increased production levels.
Fixed Costs: Expenses that remain constant regardless of production levels.

Labor Force Statistics

US Labor Force: Approximately 35% are employed by firms with fewer than 100 employees.
Large Firms in the US: About 18,000 firms employ over 500 workers, accounting for nearly half of private sector employment.

Economic Concepts

Agglomeration Factors: Explain urbanization trends as economies develop.
Diseconomies of Scale: Occur when increasing output results in rising average costs.
Total Revenue Requirement: Must exceed total costs for profit realization.

Marginal Costs

Marginal Cost Curve: Typically upward sloping due to diminishing marginal returns, indicating that producing additional units becomes more costly.
Marginal Cost Calculation: Change in total cost or variable cost divided by change in quantity produced.

Cost Analysis Examples

Average Fixed Cost Calculation at I'MaGadgetCo: With a production of 9,000 widgets and total costs of $36,000, average fixed cost is $1.00 (fixed costs of $9,000).
Impact of Production Methods: Government incentives aim to promote energy-efficient production technologies in response to recessions and carbon emissions.

Graph and Cost Relationships

Total Cost Function: Changing slope indicates decreasing marginal costs for firms.
Minimum Point of Average Cost Curve: Where marginal cost intersects average cost, indicating the most efficient scale of production.

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Test your knowledge with these flashcards covering key concepts from Chapter 7 of ECON1101. You will learn about constant returns to scale, economies of scale, and the diminishing marginal gain in output. Perfect for reinforcing your understanding of production economics.