Econ Ch. 11
supply chain
manufacturer to retail store
supply curves are upward slopping because..
marginal cost increases as firms increase quantity of good supplied
economists distinguish themselves from accountants by taking into consideration..
opportunity costs
production function
relationship between the inputs employed by a firm and the maximum output it can produce with those inputs -represents the firms technology
MC is above ATC, ATC...
rises
long run avg cost curve
shows the lowest cost at which a firm is able to produce a given quantity of output in long run when no inputs are fixed -[an envelop of short run curves]
marginal product of labor
the additional output a firm produces as a result of hiring one more worker
marginal cost
the change in a firms total cost from producing one more unit of a good or service - MC = change in TC / change in Q
opportunity cost
the highest-valued alternative that must be given up to engage in an activity -implicit costs
minimum efficient scale
the level of output at which all economies of scale are exhausted
law of diminishing returns
the principle that at some point, adding more of a variable input (like labor) to same amt of fixed input (like capital) will cause the marginal product of the variable input to decline -[when reached, with each new worker production increases by smaller amount than the hiring of the previous worker]
constant returns to scale
the situation in which firms long-run avg cost remain unchanged as it increase output [as they increase output they increase input (size of factories/# of workers) proportionally]
diseconomies of scale
the situation when firms long-run avg costs rise as the firm increases output (getting bigger doesnt always mean getting better)
average product of labor
total output produced by a firm divided by the quantity of workers [avg of marginal products of labor]
in the long run all cost are..
variable TC = VC ATC = AVC
diseconomies of scale usually occur in...
very large corporations that produce many different products and have trouble marriaging them efficiently
whenever the marginal product of labor is greater than the avg product of labor, the avg product of labor must be...
increasing (and vice versa)
marginal and avg cost curves are a U shape because
-MC of output falls and then rises -MPL rises and then falls
positive technological change
-albe to produce more output using the same inputs, or same output using fewer inputs
short run
-at least one of the firms inputs is fixed [capital] (factory/store/office/where, then number of workers is variable)
economies of scale may happen because
-firms tech may make it possible to increase production with a smaller proportional increase in at least one input -both workers and managers become specialized, enabling them to become more productive as output expands -large firms may be able t purchase inputs at lower costs than smaller competitors *occur when LRAC are decreasing
just in time inventory systems
-gets shipments from suppliers as close as possible to the time the goods will be needed
inventories
-goods that have been produced but not yet sold -want to "turn over" as quickly as possible so items dont sit on shelves -too few result in stockouts
technology
-processes a firm uses to turn inputs into outputs of goods and services -depends on skills of its managers, training of its workers and the speed and efficiency of its machinery equipment
inputs
-things we need (all/any workers, machines, natural resources) to produce outputs of goods and services
technology is described by how many...
inputs it takes to produce a particular amount of output
Which of the following is not a source of technological advancement for a producer? a) better trained workers b) more efficient physical capital c) higher skill level of managers d) outsourcing some aspect of production
D: outsourcing some aspects of production
the minimum ATC will be where it is crossed by the ___ curve
MC
Q is the sum or all the
MPL
max APL (average product labor) is where APL=
MPL (marginal product labor)
graph of TC VC FC
TC is above VC, distance in between the two curves is the FC
ATC =
TC/Q = FC/Q + VC/Q = AFC + AVC =ATC - AFC which means that the AVC will be less than the ATC for all levels of output
MC=ATC, when ATC is at...
its lowest pt
economic costs
accounting (explicit) + implicit costs
when LRAC are constant we have..
constant returns to sale
total cost
cost of all the inputs a firm uses in production -(in short run: fixed plus variable)
variable costs
costs that change as output changes
fixed costs
costs that remain constant as output changes
if MP<AP then AP is
decreasing
when MPL is increasing the output of the firm is growing faster than the amount of workers because the firm pays all of its workers the same amt, labor cost are increasing slower than output is, so MC is ...
decreasing
economic depreciation
difference btw what someone paid for their capital at the beginning of the year and what they would have received at the end of the year (implicit cost)
economies of scale graph goes in this oder:
economies of scale -> minimum cost/min eff. scale -> constant -> diseconomies of scale
accounting costs =
explicit costs
MC is below ATC, ATC...
falls
long run
firm able to vary all its inputs and can adopt new technology and increase or decrease size of its physical plant
implicit costs
firm experiences a nonmonetary opportunity costs
explicit costs
firm spends money
economies of scale
firms long run avg costs fall as it increases the quantity of output it produces
economies of scale do ot continue forever. long run ave cost curve in most industries has a ....
flat segment that often stretches over a substantial range of output
when MPL is decreasing, as you add more labor, output does not increase as rapidly so labor cost increase faster than output and MC...
increases
if MP>AP then AP is
increasing