48 Questions
What is a fixed input?
An input whose quantity is fixed for a period and cannot be varied
In the long run, what can be varied?
All inputs
What does the total product curve show?
How the quantity of output depends on the quantity of the variable input for a given quantity of the fixed input
What is marginal product?
The change in output resulting from a one-unit increase in the amount of labour input ($\frac{ΔQ},{ΔL}$)
What is a fixed cost?
A cost that does not depend on the quantity of output produced. It is the cost of the fixed input.
What is the formula for marginal cost (MC)?
$MC = \frac{\Delta TC}{\Delta Q}$
Why is the marginal cost curve upward sloping?
Due to diminishing returns to inputs, leading to higher cost per additional unit of output
What is the formula for average total cost (ATC)?
$ATC = \frac{TC}{Q}$
Why is the average variable cost (AVC) upward sloping?
Due to diminishing returns to inputs, leading to higher variable cost per unit of output produced
Why is the average fixed cost (AFC) downward sloping?
Due to the spreading effect: larger output leads to lower average fixed cost as fixed costs are spread over more units
What happens when the marginal cost curve intersects the average total cost curve from below?
The average total cost curve is at its lowest point
In the long run, what does the long-run average total cost curve show?
The relationship between output and average total cost when fixed costs are chosen to minimize average total cost for each level of output.
When do economies of scale occur?
When long-run average total cost declines as output increases.
What are marginal abatement costs used for?
To examine the cost of reducing the quantity of pollution emitted into the environment.
Why does the marginal cost curve intersect the average total cost curve at its lowest point?
Due to the spreading effect and diminishing returns effect
What is the formula for average fixed cost (AFC)?
$AFC = FC / Q$
When does economies of scale occur?
When long-run average total cost declines as output increases
What is the formula for marginal cost (MC)?
$MC = \frac{\Delta TC}{\Delta Q}$
What does the long-run average total cost curve show?
The relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output
What is a common measure used to examine the cost of reducing pollution emitted into the environment?
$Marginal$ $abatement$ $costs$
What happens when there are decreasing returns to scale (diseconomies of scale)?
The long-run average total cost increases as output increases
In the short run, at least one input is fixed. What is the period in which all inputs can be varied?
Long run
What is the relationship between the quantity of inputs a firm uses and the quantity of output it produces called?
Production function
What is a fixed input?
An input whose quantity is fixed for a period and cannot be varied
What does the total product curve show?
How the quantity of output depends on the quantity of the variable input for a given quantity of the fixed input
$Marginal product$ measures what?
$\frac{\Delta Q},{\Delta L}$
What is a fixed cost?
A cost that does not depend on the quantity of output produced
What is the total cost (TC) of producing a given quantity of output?
The sum of fixed cost (FC) and variable cost (VC)
Why does marginal product initially rise as more workers are hired?
Because each additional worker contributes more than the previous one
What does a variable cost depend on?
The quantity of output produced
In which period can all inputs be varied?
Long run
What happens when marginal cost intersects average total cost from below?
Marginal cost exceeds average total cost
Why is average variable cost (AVC) upward sloping?
As more units of input are used, the cost per unit of input increases
What is the relationship between the quantity of inputs a firm uses and the quantity of output it produces called?
Production function
In the long run, what can be varied?
Both fixed and variable inputs
What does the total product curve show?
Relationship between quantity of inputs and quantity of output
Why does marginal product initially rise as more workers are hired?
As a result of diminishing marginal returns
$Marginal product$ measures what?
$\frac{ΔQ},{ΔL}$
$Marginal product$ initially rises as more workers are hired, then it declines. What is this an example of?
Diminishing marginal returns
$Marginal cost$ measures what?
Change in total cost resulting from a one-unit increase in output
What is a fixed cost?
Cost that does not depend on the quantity of output produced
What is a variable cost?
Cost that depends on the quantity of output produced
Why does the marginal cost curve intersect the average total cost curve at its lowest point?
Due to the spreading effect and diminishing returns effect
What is the formula for marginal cost (MC)?
MC = ΔTC/ΔQ
When do economies of scale occur?
When long-run average total cost declines as output increases
What does the total product curve show?
The relationship between the quantity of inputs and the quantity of output produced
Why is the average fixed cost (AFC) downward sloping?
Due to the spreading effect
What is a common measure used to examine the cost of reducing pollution emitted into the environment?
Marginal abatement costs
Test your knowledge on production functions, input types, cost structure, and the relationship between inputs and outputs in the long run.
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