Chapter 12 Notes

Economics 101 with Gandhi/serrano-padial at University of Wisconsin - Madison

About this deck

By: Jeremy Warren
Textbook: Microeconomics

Study Guide for Macroeconomics
Created: 2011-04-05
Size: 32 flashcards
Views: 69

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Production Function

Is the relationship between the quantity of inputs a firm uses and the quantity of output it produces

Fixed input

Is an input whose quantity is fixed for a period of time and cannot be varied

Variable Input

Is an input whose quantity the firm can vary at any time

The time period which all inputs can be varied

Long Run

The time period in which at least one input is fixed

Short run

Total product Curve

shows the quantity of output depends on the quantity of the variable input for a given quantity of the fixed in put

Marginal product of labor (MPL)

Additional quantity of output that is produced by using one more unit of that input

= Change in quantity of output / change in quantity of labor

Diminishing returns to an input

The marginal product of labor is decreasing as the quantity of that input goes up

Fixed cost

Doesn't depend on the quantity output.

It is the cost of the fixed input

Ex: cost of building/rent

Variable Cost

Depends on the quantity of output produced

-It is the cost of the variable input

Ex: Workers wages

Total Cost

Fixed cost + variable cost

Marginal Cost Equation

= Change in Total cost/ Change in Quantity

Average Total Cost

= TC / Q of output

usually U-Shaped

-Because it depends on 2 parts

Average fixed cost: falls when output increases (spreading effect)
Average Variable Cost: Rises with the input (diminishing effect)

Average Fixed Cost Equation

= FC / Q

Average Variable Cost Equation

= VC / Q

The Spreading Effect

The larger the output, the greater the quantity of output over which fixed cost is spread,

Leading to lower average costs

The diminished effect

The larger the output, the greater the amount of variable input required to produce additional units,

Leading to a higher average cost

Minimum Cost Output

Bottom of the U-Shaped Curve of ATC

ATC = MC

At output less than this point, ATC is falling

At output greater than this, ATC is rising

Long run looks at..

All quantities of inputs

She short run looks at

The quantity of a fixed input can not be varied, but the quantity of a variable input can

There are diminishing returns to an input when....

It's marginal product declines as more of the input is used, holding the quantity of all other imports fixed

As out put increases, the marginal cost usually...

Increases, along with total cost

In the long run, a producer can change...

Its fixed cost and its level of fixed cost

-by accepting a higher fixed cost, a firm can lower its variable cost for any given output level, and vice versa

The long run average total cost

Shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost at any level of output

Adding more fixed inputs to the production process shifts the total product curve _______ and the marginal product curve ___________.

upward; upward

Diminishing marginal returns to the variable inputs causes the total cost curve to

get steeper as output increases.

Does marginal cost depend upon the level of fixed costs?

What shape is the average fixed cost curve

Is downward sloping

The U-shape of the average total cost curve is caused by the ___________ having a powerful effect at lower levels of output and the ___________ having a powerful effect at high level of output.

spreading effect; diminishing returns effect

The swoosh-shape of the marginal cost curve is caused by the ___________ having a powerful effect at lower levels of output and the ___________ having a powerful effect at high levels of output.

specialization effect; diminishing returns effect

Specialization Effect

Lowers the cost as workers become more productive

Creates the "swoosh" shape in the marginal cost curve

If long-run average total cost declines when output is increasing, then the cost curves exhibit:

Increasing Returns to Scale

About this deck

By: Jeremy Warren
Textbook: Microeconomics

Study Guide for Macroeconomics
Created: 2011-04-05
Size: 32 flashcards
Views: 69

About StudyBlue

“Simply amazing. The flash cards are smooth, there are many different types of studying tools, and there is a great search engine. I praise you on the awesomeness.”
Dennis