Econ study

What is the long​ run?

An amount of time needed to make all production inputs variable.

If you observe that your average product is just beginning to​ decline, should you hire any more​ workers? What does this situation imply about the marginal product of your last worker​ hired?

At the point where average product begins to​ decline, marginal product is equal to average product. Since total product continues to​ increase, it may still be advantageous to hire another worker.

example of the law of diminishing marginal​ returns?

Holding capital​ constant, when the amount of labor increases from 5 to​ 6, output increases from 20 to 25. Then when labor increases from 6 to​ 7, output increases from 25 to 28.

Average Product

Output/quantity of varible input output/total input

You are an employer seeking to fill a vacant position on an assembly line. Are you more concerned with the average product of labor or the marginal product of labor for the last person​ hired?

The marginal product because it measures the effect the last person hired has on​ output, or total product. This helps determine the revenue generated by hiring an another​ worker, which can be compared with the cost of hiring an another worker

The short run is

a period of time during which some inputs can be varied and some cannot.

Constant returns to scale with an​ upward-sloping long-run industry supply curve

are possible because proportional increases in inputs yielding the same proportional increase in output may induce higher input prices.

marginal product

change in output/change in variable input q/input

Sunk costs

costs that have already been incurred and cannot be recovered

Economies of scale

factors that cause a producer's average cost per unit to fall as output rises

If a firm hires a currently unemployed​ worker, the opportunity cost of utilizing the​ worker's services is zero. T or F why

false because the​ worker's time otherwise spent in unpaid household work has value.

For a market to be perfectly​ competitive,

firms must be price​ takers, firms must produce a homogeneous​ product, and firms must be able to easily enter and exit the market.

If firms can easily enter and exit a​ market, then

firms will produce at minimum average cost in the long run.

In a constant−cost industry, the​ long-run industry supply curve is

horizontal

If firms produce a homogeneous​ product, then

products will be perfectly substitutable with one another.

A firm would not be willing to produce in the long run at prices below this level because

profit would be negative and the firm would be better off exiting the industry since there are no fixed production costs.

Economies of scope

savings that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology

diseconomies of scope

situation in which joint output of a single firm is less than could be achieved by separate firms when each produces a single product

Economic rent

that part of the payment for a factor of production that exceeds the owner's reservation price, the price below which the owner would not supply the factor

profit would be negative and the firm would be better off exiting the industry since there are no fixed production costs.

the firm would incur smaller losses by producing than by shutting​ down, where losses equal the fixed cost of production.

diseconomies of scale

the property whereby long-run average total cost rises as the quantity of output increases

Why might you expect the marginal product of additional workers to diminish​ eventually?

they may no longer be able to specialize​, and output will increase at a diminishing rate.

If firms are price​ takers, then

they will produce where price equals marginal cost.

If the owner of a business pays himself no​ salary, then the accounting cost is​ zero, but the economic cost is positive. T or F why?

true because economic costs include opportunity costs such as the value of the business​ owner's time.

A firm that has positive accounting profit does not necessarily have positive economic profit. T or F why

true because economic costs will be greater than accounting costs if implicit costs exist.

A production input that can be varied in both the short run and the long run is called a _______ A production input that can only be varied in the long run is called a ______.

variable input fixed input

The marginal product of the second and third workers might be increasing because

workers can specialize at a separate task​, and output will increase at an increasing rate.