Econ Chapter 11
How do specialization and division of labor typically affect the marginal product of labor In the initial stages of production , specialization and division of labor lead to an increasing margianl product for workers
allowing workers to concentrate on a few tasks so that they become more skilled at doing them quickly and efficiently
economies of scale happen when the firms long run average total cost ____ as output increases
decreases
ATC = TC / Q ; MC = Change TC / Change Q
difference between the average cost of production ATC and marginal cost of production MC
any cost that remains unchanged as output changes represents a firms any cost that changes as output changes represents a firms what is most likely to be fixed cost for a farmer what is the most likely to a variable cost for a business firm
fixed cost variable cost insurance premiums on property Cost of shipping products
suppose henry ford had continued to experience increasing returns to scale, no matter how large an automobile factory he built. discuss waht the imlpications of this would have been for automobile industry
ford could have profitably sold his cars at a lower price than competitors ford would have been able to produce his cars at lower run average cost than competitors
what are implicit costs
forgone salary and interests
what is a production function a firms production function is best described as a short run production funcition holds constant
illustratin the relationship between inputs and the maximum mounts of output that the firm can produce with these inputs The amount of capital
if the marginal product of labor is rising, is the marginal cost of production rising or failing? Breifly If the additional output from each new worker is rising
the marginal cost of that output is falling becasue the only additional cost to producing more output is the additional wages paid to hire more workers
When a positive technological change occurs
more output can be produced from the same inputs the same output can be produced with fewer inputs
explain whether you agree or disagree with the following statement Henry ford expected to be able to produce cars at a lower average cost
the statement is incorrect . Ford was not able to produce cars at lower average cost due to dieconomies of scale
suppose the total cost of producing 10k tennis balls is 50k and teh fixed cost is 10k
what is the variable cost > 40k
economies of scale occur
when a firms long run average costs decrease with output
what are dis economies of scale
when a firms long run average costs increase with output
which costs are affected by the level of output produced
variable costs
what was the opportunity cost to bennet of his team playing in seattle rather than oklahoma city
82 million because that is the value of the move to OKC
what is the law of diminishing returns the law of diminishing returns states that Does it apply in the long run
Adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the variable input to decline NO
is what sense is this tax smaller when the amount of business is larger
As production increases, fixed cost can be allocated over a greater amount of output, decreasing the averge cost of the tax
explain whether you agree with the following observation Technological change refers only to the introduction of new products, so it is not relevant to the operations of most firms
Correct, technology includes firm operations such as the training of its workers Correct, technology includes firm operations such as the efficiency of its equipment
as the level of output increases, what happens to the difference between the value of average total cost and average variable cost
Decreases because average fixed cost decreases as output increases
when the marginal product of labor is greater than the average product of labor, then the average product of labor must be
Increasing
for jill johnsons pizza restaurant , explain whether each of the following is fixed or variable cost They payment she makes on her fire insurance policy is ____ cost The payment she makes to buy pizza dough is a ____ cost The wages she pays her workers is a ____ cost The lease payment she makes to her landlord who owns the building where her store is located is a ____ cost The 300 dollars per month payment she makes to her local newspaper for running her weekly advertisements is a ____ cost
FIXED VARIABLE VARIABLE FIXED FIXED
positive technological change A firm is able to cut each workers wage rate by 10 percent and still produce the same level of output This _____ an example of positive technological change A training program makes a firms workers more productive This ____ an example of positive technological change An exercise program makes a firms workers more healthy and productive This ____ an example of positive technological change
IS NOT IS IS NOT
is it possible for technological change to be negative
It is possible for technological change to be negative. An example is when a firm hires less -- skilled workers
what do you think of Jills reasoning
Jill is incorrectly ignoring the opportunity cost of using the building she owns
I am currently producing 10k pizza per month at a total cost of 30k. If i produce 10,001 pizzas, my total cost will rise to 30,050. Therefore. my marginal cost of producing pizzas must be increasing
Jills average total cost of production is increasing,, so her marginal cost of producing pizza must be increasing
The GPA you earn in a particular semester is your ____ GPA, and your cumulative GPA for all completed semesters is your _____ Gpa
Marginal, Average
the marginal cost curve intersects both the average variables cost and the average total cost curves at their _____
Minimum
is it possible for a firm to experience a technological change the would increase the marginal product of labor while leaving the average product of labor unchanged
No, an increase in the marginal product of labor will incease the average product of labor
suppose a firm has no fixed cost, so all of its costs are variable , even in the short run If the firm marginal costs are continually increasing (that is , marginal cost is increasing from the first unit of output produced) will the firms average total cost have a U shape If the firms marginal costs are 5 at every level of output, what shape will the firms average total cost have? the firms average total cost curve will be
No, the average total cost curve will be continually increasing Horizontal
what is the difference between technology and technology change
Technology is the process of using inputs to make output, while technological change is when a firm is able to produce more output using the same inputs
adams idea of gains to firms from the divison of labor makes a lot of sense when the good of being manufactured is something complex like automobiles or comps. but it doesn't apply in the manufacturing of less complex goods or in other sectors of the economy , such as sales
The argument is incorrect. Gains from division of labor will occur whenever production of a good or provision of a service has multiple tasks
Currently producing 20k pizza/Month = total 60k. If i produce 20,001 pizza, my total cost will rise to 60,002. My marginal cost of producing pizza must be increasing
Though jills average total cost of production is decreasing , her marginal cost of producing pizzas could be increasing or decreasing
explain the marginal cost curve intersects the average variable costs curve at the level of output where average variable cost is at a minimum
When the marginal cost of the last unit produced is below the average , it pulls the average down , and when the marginal cost is above the average , it pulls the average up
It is possible for average total cost to be decreasing over a range of output where marginal cost is increasing?
Yes, if marginal cost is less than average total cost. then the average total cost will be decreasing
are implicit costs how are implicit costs different from explicit costs
a non monetary opportunity cost An explicit cost is a cost that involves spending money, while implicit cost is a non monetary cost
as production levels increase, the nook would become more profitable because
average cost per unit will fall
what cost measure is equal to AFC + AVC
average total cost
many firms consider wage costs to be variable costs . why do academic book publishers usually consider their wages and salary costs to be fixed costs in the cot of rent fixed, variable, or can it both Academic book publishers typically consider the cost of rent
employees work on several books simultaneously to be fixed because it remains constant as output changes
what are sometimes called accounting costs
explicit costs
what is the main reason that firms eventually encounter diseconomies of scale as they keep increasing the size of their store or factory
firms have difficuty coordinating production
suppose there are substantial economies of scale related to oil production from fracking what is the likely outcome
firms will combine thorugh mergers and acquisitions to become larger
the short run average cost can never be less than the long run average
in the long run , all inputs are adjusted including the ones that are fixed in the short run
what is the difference between total cost and variable cost in the long run
in the long run: the total cost of production equals the variable cost of production
the law of diminishing return applies
in the short run
the difference between the short run and long run Is the amount of time that separates the short run from the long run the same for every firm
in the short run, at least one of a firms inputs is fixed, while in the long run a firm is able to vary all its inputs and adopt new technology NO
7 11 chain of convenience stores in japan reorganized its systems for suppying its stores with food. This led to a sharp reduction in the number of trucks... Example of technological change because it does not require the use of new machinery or equipment
incorrect, technology includes the spee dof existing machinery and equipment Incorrect, technology includes the efficiency of existing machinery and equipment
when Lynch said that "the Nook business will scale" he meant the nook business will
increase in size gaining economy of scale advantages
reasons firms may experience economies of scale
large firms may be able to purchase inputs at lower costs than smaller competitors; they can also borrow money at a lower interst rate firms productions may increase with a smaller proportional increase in at least one input both managers and workers may become more specialized and hence more productive as output expands
a rental car company can realize benefits from economies of scale by
leveraging its purchasing power when buying new cars
an article in forbed discussed an estimate that the cost of materials in apples iphone 5 with 64 gig of memory was 230 apple was selling iphone for 849 can we conclude from this informatoin that apple is making a profit of about 619 per phone
likely less than 619 per iphone because apple also has fixed costs of production
the relationship between the inputs employed by a firm and maximum output it can produce with those inputs is called the
production function
how is it possible my gps for this semesters courses is higher than my gpa for the last semesters course, but my comm gpa still went down from last sem to this semester
sallys gpa for this semester is lower than her cumulative gpa
as output increases, the vertical distance between average total cost and average variable cost curves gets____ and equals ____
smaller, average fixed cost
what is the minimum efficient scale
the level of output at which all economic of scale are exhausted
what term refers to the lowest cost at which a firm is bale to produce a given level of output in the long run when no inputs are fixed
the long run average cost curve
lost nearly 500,000 in cash in addition to an expected return on investment of nearly 500,000, which made a total loss of in come to the company of nearly a million
the report sought to include implicit costs becasue Dupont could have invested its money elsewhere and earned 500,000
the rising costs of chipmaking machines might lead chipmaking companies to build larger factories
to reach the minimum effiecient scale of production
the marginal costs of offering a MOOC are low because
while the upfront time to create the materials is costly , adding another student is low cost
What is likely to happen in the long run to firms that do not reach minimum effiecient scale
will lose money if it remains in business