microecon chapter 11

it cannot be changed by any current decision

A sunk cost is irrelevant to a​ firm's current decisions because​ _______.

maximum

AVC is at its minimum at the same output level at which AP is at its ________.

The short run The long run

All decisions can be placed in two time frames:

labour

For each plant, diminishing marginal product of ______ creates a set of short run, U-shaped costs curves for MC, AVC, and ATC.

economies of scale.

Greater specialization of both labour and capital is the main source of __________

It separates attainable output levels from unattainable output levels in the *short run*.

How is The total product curve similar to the PPF?

sunk cost

If a firm's plant has no resale value, the amount paid for it is a

capital; labour In this case, average total cost increases at low output levels and decreases at high output levels. (b/c AFC higher than AVC so when add the AFC has more influence)

If a technological advance results in the firm using more _____ and less ______, fixed costs increase and variable costs decrease.

shifts​ upward; shifts upward

If other things remain the​ same, Sue's average total cost curve​ ______, and the marginal cost curve​ ______.

minimum

If the long-run average cost curve is U-shaped, the ________ point identifies the minimum efficient scale output level.

variable; variable

In the long run, all inputs are ______ and all costs are _________.

increased specialization and division of labour.

Increasing marginal returns arise from

reversed

Long-run decisions are not easily ________.

MP (marginal product) is at its maximum.

MC (marginal cost) is at its minimum at the same output level at which______

plant

We call the fixed factors of production the​ firm's _________. In the short​ run, a​ firm's plant is fixed.

They must decide how much to produce. How many people to employ. How much and what type of capital equipment to use.

What do General Motors, PennPower, and Campus Sweaters, have in common? Like every firm,

falling

When AP is rising, AVC is _______

falling

When MP is rising, MC is _________.

slopes​ downward; slopes upward

When economies of scale are​ present, the LRAC curve​ ______. When diseconomies of scale are​ present, the LRAC curve​ ______.

maximum

When marginal product equals average product, average product is at its _________.

increases

When marginal product exceeds average product, average product _____________.

average; average

When marginal product exceeds average​ product, ______ product is increasing. When average product exceeds marginal​ product, ______ product is decreasing.

decreases

When marginal product is below average product, average product __________.

increasing

When marginal product of labour is greater than average product of labour and marginal product of labour is either increasing or​ decreasing, average product of labour is _________.

does not​ change; shifts upward

Workers at​ Sue's Surfboards negotiate a wage increase of​ $100 a week for each worker. If other things remain the​ same, Sue's average fixed cost curve​ ______ and the average variable cost curve​ ______.

sunk cost

A ________ is a cost incurred by the firm and cannot be changed.

constant returns to scale or diseconomies of scale.

A firm experiences economies of scale up to some output level. Beyond that output level, it moves into________

total cost (TC)

A firm's _______ is the cost of all resources used

diminishing; diminishing

A firm's production function exhibits ________ marginal returns to labour (for a given plant) as well as ________ marginal returns to capital (for a quantity of labour).

*Increasing marginal returns initially* *Diminishing marginal returns eventually*

Almost all production processes are like the one shown here and have:

productivity

An increase in ________ shifts the product curves upward and the cost curves downward.

marginal cost (MC ) curve.

An increase in a fixed cost shifts the total cost (TC ) and average total cost (ATC ) curves upward but does not shift the

marginal cost (MC )

An increase in a variable cost shifts the total cost (TC ), average total cost (ATC ), and _______ curves upward.

costs

An increase in the price of a factor of production increases _______ and shifts the cost curves.

Total product increases. Marginal product increases initially but eventually decreases. Average product increases initially but eventually decreases.

As the quantity of labour employed increases:

increases; diminishing

As the size of the plant increases, the output that a given quantity of labour can produce __________. But for each plant, as the quantity of labour increases, ________ returns occur.

shows the average product curve and its relationship with the marginal product curve.

Average Product Curve

total cost measures

Average cost measures can be derived from each of the _______

variable

Crops are a ________ factor of production used in the production of breakfast cereal. The more breakfast cereal that is​ produced, the great is the quantity of crops used. So crops are a variable cost of production.

each additional worker has less access to capital and less space in which to work

Diminishing marginal returns arises because

plants

Each plant has a short-run ATC curve. The firm can compare the ATC for each output at different ______.

minimum MC​; minimum AVC

Maximum MP occurs at the same output as​ ______. Maximum AP occurs at the same output as​ ______.

ATC curve

Once the firm has chosen its plant, the firm incurs the costs that correspond to the ________ for that plant.

rises

Over the output range with diminishing marginal returns, marginal cost _____ as output increases.

falls

Over the output range with increasing marginal returns, marginal cost _____ as output increases.

reversed

Short-run decisions are easily ________.

below; above; MC equals ATC

Similarly, the outputs over which ATC is falling, MC is ______ ATC. The outputs over which ATC is rising, MC is _______ ATC. At the minimum ATC, _______.

irrelevant

Sunk costs are _______ to a firm's current decisions.

TC

TFC + TVC

product curves and the cost curves.

Technological change influences both the

falls; falls; increases

The AFC curve shows that average fixed cost _____ as output increases. The AVC curve is U-shaped. As output increases, average variable cost _____ to a minimum and then _________. (note: The ATC curve is also U-shaped)

Initially, Marginal product (MP) exceeds Average product (AP), which brings rising AP and falling AVC. Eventually, MP falls below AP, which brings falling AP and rising AVC. The ATC curve is U-shaped for the same reasons. In addition, ATC falls at low output levels because AFC is falling quickly.

The AVC curve is U-shaped because:

ATC curve

The AVC curve reaches its minimum before the _______ reaches its minimum.

below; above; MC equals AVC

The MC curve is very special. The outputs over which AVC is falling, MC is ________ AVC. The outputs over which AVC is rising, MC is _______ AVC. The output at which AVC is at the minimum, ________

total product (TP) *Notice that the TP curve becomes steeper at low output levels and then less steep at high output levels. In contrast, the TVC curve becomes less steep at low output levels and steeper at high output levels.

The Total variable cost curve (TVC) curve gets its shape from the _____ curve.

1. Spreading total fixed cost over a larger output —AFC curve slopes downward as output increases. 2. Eventually diminishing returns —the AVC curve slopes upward and AVC increases more quickly than AFC is decreasing.

The U-shape of the ATC curve arises from the influence of two opposing forces:

average product

The _____ of labour is equal to total product divided by the quantity of labour employed.

short run

The _______ is a time frame in which the quantity of one or more resources used in production is fixed.

total product curve

The _______ shows how total product changes with the quantity of labour employed.

marginal product of capital

The ________ is the change in total product divided by the change in capital when the quantity of labour is constant. ​Equivalently, it is the change in output resulting from a​ one-unit increase in the quantity of capital.

marginal product

The ________ of labour is the change in total product that results from a one-unit increase in the quantity of labour employed, with all other inputs remaining the same.

marginal product of capital

The _________ is the increase in output resulting from a one-unit increase in the amount of capital employed, holding constant the amount of labour employed.

long run

The __________ is a time frame in which the quantities of all resources—including the plant size—can be varied.

greater

The average cost of producing a given output varies and depends on the firm's plant. The larger the plant, the _______ is the output at which ATC is at a minimum.

production function

The behavior of long-run cost depends upon the firm's ________.

profit maximization

The firm makes many decisions to achieve its main objective:

maximum output attainable; quantities of both capital and labour.

The firm's production function is the relationship between the ________ and the _______

variable; fixed;​ marginal; variable

The law of diminishing marginal returns states that as a firm uses more of a​ _____ factor of production with a given quantity of the​ _____ factor of​ production, the​ _____ product of the​ _____ factor eventually diminishes.

As a firm uses more of a variable input (e.g. labour) with a given quantity of fixed inputs (e.g. plants), the marginal product of the variable input eventually diminishes.

The law of diminishing returns states that:

varied

The long run is a time frame in which the quantities of all factors of production can be ________. That​ is, the long run is a period in which the firm can change its plant.

planning curve

The long-run average cost curve is a ________ that tells the firm the plant that minimizes the cost of producing a given output range.

increases and eventually​ decreases; increases and eventually decreases

The marginal product of labour initially​ ______. The average product of labour​ initially______.

sunk cost *Ned spent​ $50,000 to train employees at his​ start-up firm, is an expenditure incurred that cannot be recovered. So it is an example of a sunk cost.

The past expenditure on a plant that has no resale value a ________

Technology Prices of factors of production

The position of a firm's cost curves depend on two factors:

shifts​ upward; does not change

The rent is increased by​ $200 a week. If other things remain the​ same, the average fixed cost curve​ ______ and the average variable cost curve​ ______.

shifts​ upward; does not change

The rent is increased by​ $200 a week. If other things remain the​ same, the average total cost curve​ ______, and the marginal cost curve​ ______.

increases; increases

The rising price of crops​ ______ the average total cost and​ ______ the marginal cost of producing breakfast cereals.

technology

The shapes of a firm's cost curves are determined by the _________ it uses:

fixed

The short run is a time frame in which quantities of some resources are _______. In the short​ run, the firm can change the quantity of labour it uses but not its technology and quantity of capital.

fixed

The short run is a time frame in which the quantity of at least one factor of production is ________. For most​ firms, capital,​ land, and entrepreneurship are fixed factors of production and labour is the variable factor of production.

constant

The total product curve shows the maximum output that a given quantity of labour can produce for a given plant size. So the total product curve keeps the plant size​ _________, but the production function allows for variation in capital.

varied; varied

The​ long-run average cost curve is the relationship between the lowest attainable average total cost and​ output, when plant size is​ ______ and labour is​ ______.

1. Total product 2. Marginal product 3. Average product

Three concepts describe the relationship between output and the quantity of labour employed:

the amount of labour employed.

To increase output in the short run, a firm must increase

Total cost Marginal cost Average cost

To produce more output in the short run, the firm must employ more labour, which means that it must increase its costs. Three cost concepts and three types of cost curves are:

all the factors of production used by a firm.

Total cost is the cost of

same; increases; sum of TFC and TVC

Total fixed cost is the _______ at each output level. Total variable cost _______ as output increases. Total cost, which is the _______ also increases as output increases.

land, capital, and entrepreneurship.

Total fixed cost is the cost of the​ firm's fixed factors of production long dash—the cost of​

quantity; total; quantity of labour​ employed; quantity of a factor of production

Total product is the total​ _____ of a good produced in a given period. Marginal product is the change in​ _____ product that results from a​ one-unit increase in the​ _____. Average product is the total product divided by the​ _____.

labour

Total variable cost is the cost of the​ firm's variable factor of production — the cost of _______.

Product curves

______ show how the firm's total product, marginal product, and average product change as the firm varies the quantity of labour employed.

Total fixed cost (TFC)

_______ is the cost of the firm's fixed inputs. Fixed costs do not change with output.

Average total cost (ATC)

_______ is total cost per unit of output. ATC = AFC + AVC.

Average fixed cost (AFC)

_______ is total fixed cost per unit of output.

Total variable cost (TVC)

________ is the cost of the firm's variable inputs. Variable costs do change with output.

Average variable cost (AVC)

________ is total variable cost per unit of output.

Long-run average cost curve

_________ is a curve that shows the lowest average total cost at which it is possible to produce each output when the firm has had sufficient time to change both its plant size and labour employed.

Marginal cost (MC)

_________ is the increase in total cost that results from a one-unit increase in total product.

Minimum efficient scale

_________ is the smallest quantity of output at which the long-run average cost reaches its lowest level.

Constant returns to scale

__________ are features of a firm's technology that lead to constant long-run average cost as output increases.

Economies of scale

__________ are features of a firm's technology that lead to falling long-run average cost as output increases.

Diseconomies of scale

__________ are features of a firm's technology that lead to rising long-run average cost as output increases.

Total product

___________ is the total output produced in a given period.

such as labour, raw materials, and energy

resources used by the firm (__________) can be changed in the short run.

increases

short run; Average fixed cost decreases as output increases. Average total cost increases as output increases. So the distance between the ATC curve and the AFC curve ________ as output increases.

plant

the firm's ________, is fixed in the short run.

rising; rising

​Sue's Surfboards is a firm that produces surfboards. When the marginal product curve is​ ______, the marginal cost curve is falling. When the average product curve is​ ______, the average variable cost curve is falling.

Economies of scale

​______ are features of a​ firm's technology that lead to falling​ long-run average cost as output increases.

Diseconomies of scale

​______ are features of a​ firm's technology that lead to rising​ long-run average cost as output increases