Module 6: Isoquant and Isocost Concepts

<p>ATC decreases due to spreading fixed costs over more units (B)</p> Signup and view all the answers

<p>Eventually, adding more variable input results in lesser additional output (C)</p> Signup and view all the answers

<p>The minimum profit required to keep a business operational (D)</p> Signup and view all the answers

<p>It is commonly used to estimate output elasticities in managerial decisions (C)</p> Signup and view all the answers

<p>The output level that results in the minimum average total cost (B)</p> Signup and view all the answers

<p>To minimize costs while maintaining desired output (D)</p> Signup and view all the answers

<p>It depicts the combination of inputs yielding the same output level (C)</p> Signup and view all the answers

<p>The rate at which one input can be substituted for another (A)</p> Signup and view all the answers

<p>It represents the combinations of inputs that can be purchased with a set budget (C)</p> Signup and view all the answers

<p>Sum of wage rate and interest rates multiplied by units of inputs (D)</p> Signup and view all the answers

<p>Utility costs that vary with production (D)</p> Signup and view all the answers

<p>Inputs can be substituted between labor and capital (D)</p> Signup and view all the answers

<p>Average total cost generally increases after a certain point (C)</p> Signup and view all the answers

<p>Stage 1 (C)</p> Signup and view all the answers

<p>Increased inputs will eventually yield a smaller increase in output. (D)</p> Signup and view all the answers

<p>It increases until a certain point and then begins to decline. (B)</p> Signup and view all the answers

<p>The firm is likely experiencing decreasing marginal returns. (D)</p> Signup and view all the answers

<p>Sunk costs (C)</p> Signup and view all the answers

<p>Stage 3 (A)</p> Signup and view all the answers

<p>Economies of scale (B)</p> Signup and view all the answers

<p>It begins to decrease. (D)</p> Signup and view all the answers

<p>Increasing marginal returns up to a point (D)</p> Signup and view all the answers

<p>It increases at an increasing rate. (A)</p> Signup and view all the answers

Costs that do not change with the level of output.

Costs that change with the level of output.

Total cost divided by the quantity produced.

Total variable cost divided by the total output.

The additional cost of producing one more unit.

Additional output produced by adding one more unit of input.

As variable inputs increase, additional output eventually decreases.

Output level that results in minimum average total cost.

A curve showing all possible combinations of two inputs that produce the same level of output.

A collection of isoquant curves, each representing a different level of output.

The rate at which one input can be substituted for another while keeping output constant. It's the slope of the isoquant curve.

A line showing all possible combinations of two inputs that can be purchased with a fixed budget.

The combination of inputs that minimizes the cost of producing a desired level of output.

In a perfectly competitive market, firms can't control prices, so they focus on maximizing profits by minimizing production costs.

The ability to replace one input with another while maintaining output levels. This is crucial for adjusting to changes in input availability.

A real-world example of how input substitutability can impact production. Shortages of labor due to illness can be compensated for by using more machines.

The initial stage where adding more variable input (like labor) leads to increasing marginal product and average product. This is the most efficient stage for a firm.

The stage where marginal product starts to decline, but average product continues to rise. While production is still increasing, it's less efficient than Stage I.

The stage where marginal product becomes negative. This means adding more variable input actually decreases total output. Firm shouldn't operate here.

The additional output produced by adding one more unit of labor, assuming all other inputs are fixed.

The total output divided by the quantity of labor employed.

Stage I is the most rational stage for firms because it has the highest efficiency in terms of production. Adding more variable input leads to increasing marginal product and average product.

The Law of Diminishing Returns explains why Stage I is the most efficient stage. As more variable inputs are added, the additional output gained (marginal product) starts to decline, leading us into Stage II and eventually Stage III.

Cost advantages that arise from producing goods or services on a larger scale. This can lead to increased efficiency and profit maximization potential.

Measurements that show how efficiently a company is using its resources. Higher ratios generally indicate better efficiency.