ECON_CH 7 & 8
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What is the primary factor that determines the productivity of labor?

  • The level of technology used
  • The amount of capital invested (correct)
  • The number of workers employed
  • The quantity of output produced

    • Which of the following technologies is most labor-intensive?

  • Technology C
  • Technology B
  • Technology A (correct)
  • Technology E

    • According to the law of diminishing returns, what happens to the marginal product of labor as the quantity of labor increases?

  • It increases at a decreasing rate (correct)
  • It decreases at a decreasing rate
  • It increases at an increasing rate
  • It remains constant

    • What is the primary determinant of the cost-minimizing choice among alternative technologies?

    <p>The input prices</p> Signup and view all the answers

    If the price of labor (P sub L) increases, which technology would be most affected?

    <p>Technology A</p> Signup and view all the answers

    What is the result of accumulating capital at a high rate, as seen in China's growth?

    <p>Increase in the average quantity of output per worker</p> Signup and view all the answers

    What is the primary focus of determining the optimal method of production?

    <p>Minimizing cost for a given level of output</p> Signup and view all the answers

    A capital-intensive technology is characterized by:

    <p>High capital costs and low labor costs</p> Signup and view all the answers

    What is the numerical or mathematical expression of a relationship between inputs and outputs?

    <p>Production function or total product function</p> Signup and view all the answers

    The law of diminishing returns is most closely related to:

    <p>The marginal product of an input</p> Signup and view all the answers

    A labor-intensive technology is characterized by:

    <p>High labor costs and low capital costs</p> Signup and view all the answers

    What is the term for the quantitative relationship between inputs and outputs?

    <p>Production technology</p> Signup and view all the answers

    What is the relationship between the marginal product and average product of labor?

    <p>If marginal product is above average product, the average rises.</p> Signup and view all the answers

    What is the marginal product of labor when the number of employees is 4?

    <p>5</p> Signup and view all the answers

    According to the data in Table 7.2, what is the average product of labor when the number of employees is 3?

    <p>11.7</p> Signup and view all the answers

    What is the characteristic of capital-intensive technology?

    <p>It uses a low amount of labor and high amount of capital.</p> Signup and view all the answers

    What happens to the marginal product of labor as the quantity of labor increases, according to the law of diminishing returns?

    <p>The marginal product of labor decreases.</p> Signup and view all the answers

    What is the main difference between labor-intensive technology and capital-intensive technology?

    <p>The type of input used</p> Signup and view all the answers

    What is the relationship between total product and marginal product of labor?

    <p>Total product is the sum of marginal products.</p> Signup and view all the answers

    What is the law of diminishing returns?

    <p>The law that states that marginal product of a variable input declines after a certain point</p> Signup and view all the answers

    Why are capital and labor considered complementary inputs?

    <p>Because they work together in production.</p> Signup and view all the answers

    What is the total product when the number of employees is 2?

    <p>25</p> Signup and view all the answers

    What is the point of intersection between the marginal product and average product curves?

    <p>The point of maximum average product.</p> Signup and view all the answers

    When does the law of diminishing returns apply?

    <p>Always in the short run</p> Signup and view all the answers

    What is the result of increasing the quantity of labor, while holding capital constant?

    <p>The marginal product of labor decreases.</p> Signup and view all the answers

    What does the total variable cost curve express?

    <p>The relationship between TVC and total output</p> Signup and view all the answers

    What is the formula used to derive total variable cost in Table 8.2?

    <p>TVC = (K × Pk) + (L × PL)</p> Signup and view all the answers

    What is the purpose of Table 8.2?

    <p>To derive total variable cost from production requirements and input prices</p> Signup and view all the answers

    What is shown in Figure 8.3?

    <p>The total variable cost curve</p> Signup and view all the answers

    What is the main factor that determines the total variable cost of a firm?

    <p>The input prices</p> Signup and view all the answers

    What is the relationship between the total variable cost and the level of output?

    <p>The total variable cost increases as the level of output increases</p> Signup and view all the answers

    What is a necessary component for a firm to calculate its costs of production?

    <p>The quantity of inputs needed</p> Signup and view all the answers

    What is the term for costs that are incurred even if the firm is producing nothing?

    <p>Fixed costs</p> Signup and view all the answers

    What is the formula for total cost (TC)?

    <p>TC = TFC + TVC</p> Signup and view all the answers

    What is the primary objective of firms in making production decisions?

    <p>Maximizing profits</p> Signup and view all the answers

    What is the term for the total of all costs that do not change with output even if output is zero?

    <p>Total fixed costs</p> Signup and view all the answers

    What is the term for a cost that depends on the level of production chosen?

    <p>Variable cost</p> Signup and view all the answers

    When marginal cost is above average cost, what is the trend of average cost?

    <p>Increasing</p> Signup and view all the answers

    What is the relationship between the total cost curve and the total variable cost curve?

    <p>They have the same shape but are shifted by the amount of TFC</p> Signup and view all the answers

    What is the formula for calculating Average Total Cost (ATC)?

    <p>ATC = TC / q</p> Signup and view all the answers

    What is the trend of average fixed cost as output increases?

    <p>It decreases</p> Signup and view all the answers

    What is the relationship between average variable cost and marginal cost at the minimum point of AVC?

    <p>Marginal cost is equal to average variable cost</p> Signup and view all the answers

    What is the formula for calculating Average Total Cost (ATC) in terms of average variable cost and average fixed cost?

    <p>ATC = AVC + AFC</p> Signup and view all the answers

    What is the relationship between the average total cost and the marginal cost?

    <p>MC intersects ATC at ATC's minimum point.</p> Signup and view all the answers

    What is the definition of total cost (TC)?

    <p>The total economic cost of all the inputs used by a firm in production.</p> Signup and view all the answers

    What is the equation for total cost (TC)?

    <p>TC = TFC + TVC</p> Signup and view all the answers

    What is the definition of economic costs?

    <p>Costs that include the full opportunity costs of all inputs.</p> Signup and view all the answers

    What is the relationship between the average variable cost (AVC) and the marginal cost (MC)?

    <p>MC intersects AVC at AVC's minimum point.</p> Signup and view all the answers

    What is the definition of total fixed costs (TFC)?

    <p>Costs that do not depend on the quantity of output produced.</p> Signup and view all the answers

    What does the marginal cost curve show?

    <p>How total variable cost changes with single-unit increases in total output</p> Signup and view all the answers

    What is the formula for calculating the average variable cost (AVC)?

    <p>TVC/q</p> Signup and view all the answers

    What does the term 'q' represent in the formula for calculating the average variable cost (AVC)?

    <p>Number of units of output</p> Signup and view all the answers

    What is the relationship between total variable cost and marginal cost?

    <p>Marginal cost is the change in total variable cost</p> Signup and view all the answers

    What is the total fixed cost (TFC) in the short-run cost schedule of the hypothetical firm?

    <p>$100.00</p> Signup and view all the answers

    What is the average fixed cost (AFC) when the number of units of output (q) is 4?

    <p>$33.33</p> Signup and view all the answers

    Study Notes

    Capital and Productivity

    • Additional capital increases the productivity of labor, meaning the amount of output produced per worker per hour.
    • Building new, modern plants and equipment enhances a nation's productivity.
    • China's high rate of capital accumulation in the past decade has resulted in growth in the average quantity of output per worker.

    Production Functions

    • A production function is a numerical or mathematical expression of the relationship between inputs and outputs.
    • It shows units of total product as a function of units of inputs.
    • A production function can be represented graphically, with total product on the vertical axis and units of labor on the horizontal axis.

    Marginal Product and Average Product

    • Marginal product is the additional output that can be produced by adding one more unit of a specific input, ceteris paribus.
    • The law of diminishing returns states that when additional units of a variable input are added to fixed inputs, after a certain point, the marginal product of the variable input declines.
    • Average product is the average amount produced by each unit of a variable factor of production.
    • If marginal product is above average product, the average rises; if marginal product is below average product, the average falls.

    Choice of Technology

    • Two things determine the cost of production: (1) technologies that are available and (2) input prices.
    • The optimal method of production is the production method that minimizes cost for a given level of output.
    • The cost of production is determined by the market price of output, production techniques, and input prices.

    Labor-Intensive and Capital-Intensive Technologies

    • Labor-intensive technology relies heavily on human labor instead of capital.
    • Capital-intensive technology relies heavily on capital instead of human labor.
    • The choice of technology depends on the relative prices of labor and capital.

    Short-Run Costs and Output Decisions

    • A firm's production decisions involve three specific decisions:
      • How much to produce
      • How to produce it
      • At what price to sell it

    Costs in the Short Run

    • Fixed cost: a cost that does not depend on the firm's level of output
    • Variable cost: a cost that depends on the level of production chosen
    • Total cost (TC): total fixed costs plus total variable costs (TC = TFC + TVC)

    Fixed Costs

    • Total fixed costs (TFC) or overhead: the total of all costs that do not change with output, even if output is zero
    • Total fixed costs are incurred even if the firm is producing nothing

    Variable Costs

    • Total variable cost curve: a graph that shows the relationship between total variable cost and the level of a firm's output
    • Average variable cost (AVC): total variable cost divided by the number of units of output (AVC = TVC/q)
    • Marginal cost (MC): the cost of producing each additional unit
    • The marginal cost curve shows how total variable cost changes with single-unit increases in total output

    Total Costs

    • Total cost (TC): the total economic cost of all the inputs used by a firm in production (TC = TFC + TVC)
    • Average total cost (ATC): total cost divided by the number of units of output (ATC = TC/q)
    • The relationship between ATC and MC is the same as the relationship between AVC and MC
      • If MC is below ATC, ATC will decline toward MC
      • If MC is above ATC, ATC will increase
      • MC intersects ATC at ATC's minimum point for the same reason that it intersects the AVC curve at its minimum point

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    Description

    Understanding the relationship between capital and productivity at national and international levels, and how building modern plants and equipment enhances a nation's productivity.

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