Micro Economics Chapter 11 Flashcards

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Questions and Answers

What is the best definition of technology in economics?

The process a firm uses to turn inputs into outputs.

What is defined as positive technological change? (Select all that apply)

Both A and B (correct)
Being able to produce more output using the same inputs
Producing less output with more inputs
Being able to produce the same output using fewer inputs

Give an example of technological change.

Being able to produce more output using the same inputs, being able to produce the same output using fewer inputs, and a decline in the quantity of output that can be produced from a given quantity of inputs.

What is technological change?

Change in the ability of a firm to produce a given level of output with a given quantity of inputs. Signup and view all the answers

What is a positive technological change?

When the firm is able to produce more output with the same inputs. Signup and view all the answers

What is an implicit cost?

A nonmonetary opportunity cost. Signup and view all the answers

What is the production function?

The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs. Signup and view all the answers

What is the short run?

The period of time during which at least one of a firm's inputs is fixed. Signup and view all the answers

What is the long run?

The period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant. Signup and view all the answers

What is the relationship between marginal product and average product?

Whenever the marginal product of labor is greater than the average product of labor, the average product of labor must be increasing. Signup and view all the answers

What is the average product of labor?

The total output produced by a firm divided by the quantity of workers. Signup and view all the answers

What is the marginal product of labor?

The additional output a firm produces as a result of hiring one more worker. Signup and view all the answers

Whenever the marginal product of labor is less than the average product of labor, the average product of labor must be increasing.

False (B) Signup and view all the answers

Graphically, how is the marginal cost curve described?

A U shape, initially falling when the marginal product of labor is rising and then eventually rising when the marginal product of labor is falling. Signup and view all the answers

What is total cost (TC)?

The cost of all the inputs a firm uses in production. Signup and view all the answers

What is variable cost (VC)?

Costs that change as output changes. Signup and view all the answers

What is fixed cost (FC)?

Costs that remain constant as output changes. Signup and view all the answers

What is marginal cost (MC)?

The change in a firm's total cost from producing one more unit of a good or service. Signup and view all the answers

What are economies of scale?

The situation when a firm's long-run average costs fall as it increases output. Signup and view all the answers

What are diseconomies of scale?

The situation when a firm's long-run average costs rise as the firm increases output. Signup and view all the answers

What are constant returns to scale?

The situation when a firm's long-run average costs remain unchanged as it increases output. Signup and view all the answers

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Study Notes

Technology in Economics

Technology refers to the processes firms use to convert inputs into outputs of goods and services.
Positive technological change allows firms to produce more output with the same inputs or the same output using fewer inputs.

Production Function

The production function illustrates the relationship between inputs used by a firm and the maximum output attainable.

Time Frames in Production

Short run: A period where at least one input is fixed, limiting production flexibility.
Long run: A period where all inputs can be varied, allowing firms to adopt new technology and change their physical capacity.

Product Measures

Marginal product of labor: Additional output generated from hiring one more worker.
Average product of labor: Total output divided by the number of workers.
The relationship between marginal and average product: If marginal product exceeds average product, the average must be rising, and if it is less, the average must be decreasing.

Costs in Production

Total cost (TC): The complete cost incurred from all inputs in production.
Variable cost (VC): Costs that fluctuate with the level of output.
Fixed cost (FC): Costs that remain unchanged regardless of output levels.
Marginal cost (MC): The additional cost of producing one more unit.

Economies of Scale

Economies of scale describe the reduction in long-run average costs as a firm increases production output.
Diseconomies of scale result in rising long-run average costs as output increases, often due to inefficiencies.
Constant returns to scale occur when long-run average costs remain stable with increased output.

Implicit Costs

Implicit cost: A non-monetary opportunity cost that represents the benefits foregone from the next best alternative when resources are allocated to a specific use.