Questions for Chapter 5 - Supply

Label the following actions according to their placement in the stages of production:

1. You are studying for a test and learning rapidly. 2. After a few hours, you are still learning but not as fast as before. 3. After many hours of studying, you are forgetting some of the material you learned earlier.

Explain how a change in inputs affects production.

A change in input affects production because if they have a low number of products then the input will be low.

Discuss why businesses analyze their costs?

The goal is to determine if the costs associated with the change in activity will result in a benefit that is sufficient enough to offset them.

Explain why e-commerce reduces fixed costs.

An e-commerce is an electronic business conducted over the internet and business choose e-commerce because it reduces many fixed costs by allowing businesses to easily manage the production spaced required.

What is the relationship between the increased cost of oil and the supply of ethanol?

An ethanol supplier reported net income of $32 million on revenues of $935 million in 2005. That is an increase of 10% from 2004. As the price of oil increases, the demand for ethanol fuel will increase.

If the total output of a business increases, what will happen to fixed costs? To variable costs

Average fixed costs must fall continuously as output increases because total fixed costs are being spread over a higher level of production.

What is the difference between a change in supply and a change in quantity supplied?

Change in supply is when a supplier offers a different amount of products for sale at all possible prices in the market. The quantity supplied is the amount that producers bring to market at any given price. And a change in quantity is the change in amount offered for sale in response to a change in price. In quantity supplied the price is already set but change in supply, it can be sold at any potential price that you and the supplier agree on.

Why might production functions tend to differ from one firm to another?

Different firms have different amounts of variable inputs so the production function for each firm will vary.

Identify the three types of elasticity.

Elastic supply, inelastic supply, and unit elastic supply are the three different types of elasticity. Elastic supply price causes a proportionally larger change in the quantity supplied. In an elastic supply a change in price causes a proportionally smaller change in quantity supplied. In a unit elastic supply change in price causes a proportional change in the quantity supplied.

Do you agree with Chenault's claim that being adaptable to change is the most important strategy for a successful business?

I agree with Chenault's claim. According to Chenault, being able to adapt to change is the most important strategy for achieving success in business. Change with ease frees up the time you might have normally spent being stressed out when a new challenge presented itself.

According to the Law of Supply, What will happen if the cost of production increases while prices remain the same?

If there is an increase in supply for goods and services while demand remains the same, prices tend to fall to a lower equilibrium price and a higher equilibrium quantity of goods and services.

How did Chenault's decisions improve American Express?

In 2001, Chenault became chairman and CEO of American Express. When the terrorist attacks of 9/11 brought a downturn for the company, Chenault acted fast to adjust to market conditions. He changed the focus of American Express from telephone and mail to the internet.

How has Steve & Barry's University Sportswear cut costs?

In addition, Steve & Barry's saves money on purchases. Its, like many others, buys directly from overseas companies, but saves money by tolerating longer lead times. It also saves money by providing consistent output year-round rather than periodic ramp-ups.

Explain how the marginal product changes in each of the three stages of production.

In the first stage it is increasing returns, in the second stage it is diminishing returns, and in the third stage it is negative returns.

How do the cost-cutting steps help Steve & Barry's increase its profits?

Increase the order and effectiveness of the retail branch network. Shift as many activities as possible from the branches to the centralized back office. Standardize processes throughout the region. It was a classic call for cost cutting strategies in a bank.

Describe what economists mean by supply.

It is the amount of a product that can be offered for sale at all possible prices that could prevail in the market.

If you were a producer, what might prevent you from increasing the quantity supplied in response to an increase in price? Explain.

Less workers, Shortage of additional resources, and storage space.

Explain how a change in the price of an item affects the quantity supplied.

Like we discussed in the last chapter, when the price of the product is raised, the quantity consumed decreases. And the Law of Supply, which states that suppliers normally sell any product higher than what they bought it for. And if the prices were reduced more of that item would be bought.

Imagine that gas prices have increased to $5.00 per gallon. What will happen to the supply of fuel-efficient cars in the short run and in the long run?

Short run: There will always be a need for cars this means that cars are inelastic, meaning no matter how much the price changes the demand will still be there. Long run: Since cars are inelastic manufacturers will still make cars no matter how much the gas price changes.

What are the advantages and disadvantages of E85?

Some disadvantages are that only about 600 of the 180,000 U.S. Service stations supply it. You would also have to fill it up more often, because ethanol contains less energy than gasoline. In addition, you have to drive a flexible-fuel vehicle (FFV) to use it. Some advantages are that ethanol yields about 26% more energy than it takes to produce it. The ethanol industry supported the creation of more than 153,000 U.S. jobs in 2005. The greatest benefit of increased ethanol supply will be reducing the U.S. dependence on foreign oil.

Describe the three stages of production.

Stage 1 is increasing marginal returns. Stage 2 is decreasing marginal returns, which is where the output increases at a diminishing rate as more variable inputs are added. In stage 3 the negative marginal returns and the marginal product of additional workers is negative.

Explain how supply is different from demand.

Supply is opposite of demand because as price increases, demand decreases but for supply, as price increases, supply also increases. Supply describes the actions of the producer, while demand represents the buyer's side.

According to the Law of Supply, what will happen to the number of products a firm offers for sale when prices go down?

The higher the price, the more goods a firm will offer for sale, and, conversely, the lower the price, the fewer goods a firm will produce.

Illustrate what will happen to supply in each of the situations provided.

The law of supply summarizes the effect price changes have on producer behavior.

How does the length of the production period affect the Output of a firm?

The length of period of the production affects the output of a firm because the short run is only a brief moment where nothing really changes, only the number of workers as of the long run the changes can be the capital.

Distinguish between the individual supply curve and the market supply curve.

The major difference between them is that individual supply refers to the quantity supplied by the single seller whereas market supply refers to the quantity supplied by all sellers in the market. The individual curve is steeper whereas the market curve is relatively flatter.

Explain how businesses determine their profit maximization output.

The monopolist's profit maximizing level of output is found by equating its marginal revenue with its marginal cost, which is the same profit maximizing condition that a perfectly competitive firm uses to determine its equilibrium level of output.same profit maximizing condition that a perfectly competitive firm uses to determine its equilibrium level of output.

Explain why the supply curve slopes upward.

The supply curve slopes upward because as prices increase, quantity supplied also increases. Price and quantity move in the same direction and have a positive relationship for supply.

Describe the relationship between marginal cost and total cost.

There is a close relationship between Total Cost and Marginal Cost. We know the marginal cost is the addition to total cost when one more unit of output is produced.

Explain the difference between fixed and variable costs?

These are costs that largely remain constant, such as your monthly rent. Variable expenses: These are costs that vary or are unpredictable, such as dining out or car repairs.

Describe the factors that can cause a change in supply.

Three factors that can cause a change in supply are technology, subsidies, and future prices. Technology lowers costs and increases at all price levels. A subsidy increases supply because it increases the producers' received revenue to lower the cost of producing goods and encourage production. If a seller thinks prices will go up in the future, he or she might store some of the product to sell later.

Explain the difference between total product and marginal product

Total production is the total output produced by a firm. Marginal product is the extra output or change in total product caused by adding one more unit variable input.

How does the quantity supplied change when the price doubles for a unit elastic product?

When the price of a unit elastic product doubles, the quantity brought to market doubles, the amount supplied changes. The supply curve slopes upward because of the Law of Demand, which asserts that higher prices result in more things being provided, while lower prices result in fewer products being supplied.

Many plants use several shifts of workers in order to operate 24 hours a day. How do a plant's fixed and variable costs affect its decision to operate around the clock?

Working around the clock also makes the plant more money by simply supplying more products; this makes the production more smooth and efficient.

You need to hire workers for a project and add one worker at a time to measure the added contribution of each worker At what point will you stop hiring workers? Relate this process to the three stages of the production function.

You can hire more workers while the production is in stage 2. In stage 1 marginal product increases so it is profitable to keep increasing production. In stage 2 the output increases at a fast rate because marginal product is decreasing. The final stage is when the marginal product turns negative and so the whole product falls. Hiring should stop before reaching stage 3.

Supply

is the amount of a product offered for sale at all possible prices.