Microeconomics Chapter 11

atcha is rising when mc is below atc

false

average fixed cost is always higher than average variable cost

false

the atcha crosses the mc at TC=FC+VC+MC

false

the atcha is increasing when ever the mc is increasing

false

the vc curve is modeled as a horizontal line

false

average fixed cost

fixed cost per unit of output AFC=FC/Q (fixed cost/qty of output)

total cost=

fixed cost+variable cost OR TC=FC+VC

A firm's __ are costs that are incurred even if there is no output. In the short run, these costs __ as production increases.

fixed costs, do not change

examples of fixed costs

lease on building, industrial equipment costs, interest on current debt, regulatory compliance costs, annual salaries of top management

output less than the minimum-cost output

marginal cost if greater than average total cost and average total cost is falling

output greater than the minimum cost output

marginal cost is greater than average total cost and average total cost is rising

at the current level of output, Becca Furniture's marginal cost curve is above the average total cost curve. This means Becca Furniture's average total cost curve:

must be rising

how does diminishing return hold

only holds if the quantity of all other inputs is fixed

long run

period in which all inputs can be varied

short run

period in which at least one input is fixed

total product curve

quantity of output depends on the quantity of the variable input, for a given amount of the fixed input

production function

relationship between the quantity of inputs and the quantity of outputs

long-run average total cost

shows relationship between output and average total cost when fixed cost has been chosen to minimize total cost for each level of output

average total cost

simply average cost -total cost divided by quantity of output produced -ATC=TC/Q

one thing that distinguishes the short run and the long run is

the existence of at least on fixed input

in economics, the short run is defined as

the period in which some inputs are considered to be fixed in quantity

u-shaped average total cost curve

fall at low levels of output, then rises at higher levels

does marginal cost curve always slope upward

-Marginal cost curves often slope down as a firm increases its production from zero to some low level due to gains from specialization. -They slope upwards only at higher levels of production, when all gains from specialization have been realized. -If there are early gains, the marginal cost curve will have a swoosh shape.

average total cost equation

TC/Q -total cost divided by quantity of output

average variable cost equation

VC/Q -the sum of all costs that change as output changes divided by the number of units produced

marginal cost equation

^TC/^Q -the amount by which total cost increases when an additional unit is produced -change in total cost divided by change in output

if marginal cost is equal to average total cost

average total cost is at its maximum

marginal product

additional quantity of output that is produced by using one more unit of that input

what happens to average fixed cost as more output is produced

average fixed cost falls

marginal product of labor

change in quantity of output generated by one additional unit of labor MPL=^Q/^L

marginal cost=

change in total cost generated by one additional unit of labor OR MC=^TC/^Q (total cost/qty of output)

examples of variable cost

cost of metal used in manufacturing, cost of wood used in manufacturing, postage and packaging costs

variable cost

cost that depends on the quantity of output produced -cost of the variable input

fixed cost

cost that does not depend on the quantity of output produced -cost of the fixed input

diseconomies of scale

decreasing returns to sale, when long-run average total cost increases as output increases

long run is defined as

during which all inputs can be varied

what does average total cost tell producer

how much the average or typical unit of output costs to produce

what does marginal cost tell the producer

how much the last unit of output costs to produce

economies of scale

increasing returns to scale, when long- run average total cost declines as output increases

fixed input

input whose quantity is fixed for a period and cannot be varied

variable input

input whose quantity the firm can vary at any time

total cost of producing a given quantity of output

is the sum of the fixed cost and the variable cost of producing that quantity of output

marginal cost rises because

there are diminishing returns to inputs when a variable input is increased as quantities of the other inputs are fixed

diminishing returns

to an input increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input

ATC=(FC+VC)/Q

true

all costs are either fixed or variable

true

mc refers to the change in total cost associated with the production of another unit

true

the atc is always greater than or equal to avc

true

when fixed costs are positive, the average fixed cost curve is downward sloping

true

average variable cost

variable cost per unit of output AVC=VC/Q (variable cost/qty of output)

A firms __ are costs that increase as quantity produced increases. These costs often show __ illustrated by increasingly steeper slop of the total cost curve.

variable costs, diminishing marginal returns

constant returns to scale

when long-run average total cost is constant as output increases

if two firms are identical in all respects except that one has more of the fixed input capital than another, the total product curve for the firm with more capital

will lie above the total product curve for the firm with less capital