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Questions and Answers
What does the term 'constant returns to scale' describe?
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.
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.
____________________________ 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 _______________________
In order to determine the average variable cost, the firm's variable costs are divided by _______________________
Approximately what percentage of the US labor force is employed by firms that have fewer than 100 employees?
Approximately what percentage of the US labor force is employed by firms that have fewer than 100 employees?
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?
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?
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.
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.
_____________________ help to explain why every economy, as it develops, has an increasing proportion of its population living in urban areas.
_____________________ help to explain why every economy, as it develops, has an increasing proportion of its population living in urban areas.
______________ include all of the costs of production that increase with the quantity produced.
______________ include all of the costs of production that increase with the quantity produced.
Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.
Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.
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 ______________________.
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 ______________________.
What does the changing slope of the total cost curve for GoodieCookie Co. reflect?
What does the changing slope of the total cost curve for GoodieCookie Co. reflect?
In microeconomics, the term _____________________ is synonymous with economies of scale.
In microeconomics, the term _____________________ is synonymous with economies of scale.
Which of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business?
Which of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business?
In microeconomics, the term ___________________ is synonymous with decreasing returns of scale.
In microeconomics, the term ___________________ is synonymous with decreasing returns of scale.
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.
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.
What is a situation called where the level of output, scale and average costs are all rising?
What is a situation called where the level of output, scale and average costs are all rising?
The marginal cost curve is generally ______________ because diminishing marginal returns implies that additional units are ________________________.
The marginal cost curve is generally ______________ because diminishing marginal returns implies that additional units are ________________________.
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.
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.
In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity.
In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity.
What was I'MaGadgetCo's average fixed cost to produce 9,000 widgets?
What was I'MaGadgetCo's average fixed cost to produce 9,000 widgets?
Mindy's company manufactures rubber balls used by elementary schools for playground activities. Which of the following statements is correct?
Mindy's company manufactures rubber balls used by elementary schools for playground activities. Which of the following statements is correct?
Based on the information illustrated in the graph, which of the following is correct?
Based on the information illustrated in the graph, which of the following is correct?
If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.
If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.
Economies of scale may arise from all but one of the following. Which one is it?
Economies of scale may arise from all but one of the following. Which one is it?
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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Description
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.
