Econ Chapter 5
What aspects of the production process can be evaluated by examining a production function?
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Stage 2 of Production
Decreasing marginal returns: total production keeps growing but the rate of increase is smaller; each worker is still making a positive contribution to total output, but it is diminishing.
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How does the length of the production period affect the output of a firm?
Stage 1 of Production
Increasing Marginal Returns: marginal output increases with each new worker. Companies are tempted to hire more workers, which moves them to Stage 2
Stage 3 of production:
Negative marginal returns:In Stage III (negative returns), marginal product becomes negative, decreasing total plant output.
Discuss how government regulation affects the supply curve of railroads industry.
Required the publishing of railroad shipping rates Made rebates or special discounts to favored customers illegal Prohibited price discrimination against small markets Gave the ICC authority to approve or reject mergers and acquisitions, control prices, and decide what routes could be extended and abandoned
profit-maximizing quantity of output
The profit-maximizing quantity of output occurs when marginal cost is exactly equal to marginal revenue. Other quantities of output may yield the same profit, but none yield more.
subsidy
a financial aid supplied by a government, as to industry, for reasons of public welfare, the balance of payments, etc
market supply curve
a graph that shows data from a market supply schedule
supply curve
a graph that shows data from a supply schedule
quantity supplied
amount offered for sale at a given price; point on the supply curve
overhead
broad category of fixed costs that includes interest, rent, taxes, and executive salaries
fixed costs
cost of production that does not change when output changes
change in supply:
cost of resources, productivity, technology, taxes and subsidies, expectations, gov regulations, and numbers of sellers
marginal analysis
decision making that compares the extra cost of doing something to the extra benefits gained
e-commerce
electronic business or exchange conducted over the Internet
marginal cost
extra cost of producing one additional unit of production
marginal product
extra output due to the addition of one more unit of input
marginal revenue
extra revenue from the sale of one additional unit of output
production function
graphic portrayal showing how a change in the amount of a single variable input affects total output
stages of production
increasing, decreasing, and negative returns
variable costs
production cost that varies as output changes; labor, energy, raw materials
break-even point
production needed if the firm is to recover its costs; production level where total cost equals total revenue
long run
production period long enough to change amount of variable and fixed inputs used in production
short run
production period so short that only variable inputs can be changed
law of supply
states that producers are willing to sell more of a good or service at a higher price than they are at a lower price
change in quantity supplied
the change in amount offered for sale in response to a change in price
supply elasticity
the percentage change in quantity supplied divided by the percentage change in price.
supply
the willingness and ability of a producer to produce and sell a product
total product
total output or production by a firm
total revenue
total receipts; price of goods sold times quantity sold
total cost
variable plus fixed cost; all costs associated with production
inelastic
when a small increase in price cause little change in supply.
elastic
when a small increase in price leads to a larger increase in output and supply.
unit elastic
when in price causes a proportional change in supply.
change in supply
when suppliers offer different amounts of products for sale at all possible prices in the market.
