Econ Week 8 (production)
Diseconomies of Scale
A condition in which the long-run average total cost of production increases as production increases.
Constant Returns to Scale
A condition in which the long-run average total cost of production remains constant as production increases.
Which of the following scenarios does NOT illustrate a long-run adjustment? A)A local Starbucks hires two new employees. B)Three firms leave the retail clothing industry. C)Ten new vineyards are opened in the U.S. D)Honda Jet builds a new assembly plant in Greensboro, NC.
A local Starbucks hires two new employees.
Suppose that a business incurred explicit costs of $1.5 million and implicit costs of $300,000 last year. If the firm sold 4,500 units of its output at $450 per unit, its accounting profits were _______ and its economic profits were _______.
AP = 2,025,000 - 1,500,000 = 525,000 EP = 2,025,000 - 1,800,000 = 225,000
Explicit Costs
Monetary payments made by individuals, firms, and governments for the use of resources owned by others.
a difference between the short run and the long run?
Some resources are fixed in the short run and all resources are variable in the long run.
Average Total Costs
TC / Amt output produced
Average Fixed Costs
TFC divided by the amount of output produced.
economic profit
TR - economic costs (explicit + implicit)
Average Variable Costs
TVC / Amt output produced
Marginal Cost
The additional cost associated with 1 more unit of an activity.
The marginal cost curve crosses the:
average variable and average total cost curves at their lowest points.
Variable Costs
change with the amount of output produced, increasing as production increases and decreasing as production decreases. ex. labor
A firm is experiencing diseconomies of scale if:
costs increase as output expands.
Average fixed cost curve ....
declines continually as output expands
Fixed Costs
do not change with the amount of output produced ex. insurance, doesnt matter how much or how long you drive.. insurance is the same
economic cost =
explicit + implicit
Generally, accounting profits are _____ than economic profits, because accounting profits do not consider ____
higher implicit costs
when total product is rising, marginal product is
positive
Implicit Cost
The opportunity costs of using owned resources. ex. instead of using your building as a restaurant you could use it as a night club
total costs
The sum of fixed and variable costs of production.
long run
The time period in which all inputs of production can be changed.
short run
The time period in which at least one input of production is fixed but other inputs can be changed.
Total Product (TP)
The total amount of output produced with a given amount of resources.
Opportunity Cost
The value of the next-best foregone alternative.
accounting profit =
Total revenue - explicit costs
Increasing Marginal Returns
the MP of the next unit of a variable resource utilized is greater than that of the previous variable resource.
One reason a firm may experience economies of scale is:
the firm experienced specialization in labor and management.
Economies of Scale is a condition where
the long-run average total cost of production decreases as production increases.
Long-Run Average Total Cost Curve shows
the lowest ATC possible for any given level of output when all inputs of production are variable.
Diminishing Marginal Returns
the marginal product of the next unit of a variable resource utilized is less than that of the previous variable resource.
Average total cost is __________ divided by the number of units of output.
total cost
marginal product will
usually increase then decrease and often eventually becomes negative