Econ exam 2 ch 11

Increasing output has two opposing effects on average total cost

The spreading effect: The larger the output, the more output over which fixed cost is spread, leading to lower average fixed cost. The diminishing returns effect: The larger the output, the more variable input required to produce additional units, which leads to higher average variable cost

A fixed cost is

a cost that does not depend on the quantity of output produced. It is the cost of the fixed input.

At high levels of output the spreading effect is: a. stronger than the diminishing returns effect. b weaker than the diminishing returns effect.

b

If one worker makes 14 baskets, two workers make 34 baskets, three workers make 45 baskets, and four workers make 50 baskets, which worker yielded the highest marginal product? a The first worker b The second worker c The third worker d The fourth worker

b

Marginal product is the slope of the: a. marginal cost curve. b. total product curve. c. long-run average total cost curve. d. total cost curve.

b

Marginal Product?

change in quantity/change in labor

The marginal cost is

change in total cost/change in quantity

A variable cost is a

cost that depends on the quantity of output produced. It is the cost of the variable input.

Because there are diminishing returns to inputs in this example. As output increases, the marginal product of the variable input

declines

Average fixed cost is

downward sloping because of the spreading effect.

With more land (fixed input)

each worker can produce more. This shifts the total product curve up.

All inputs are variable in the long run. This means that in the long run,

fixed cost (like factory size) may also vary.

The total product curve shows

how the quantity of output depends on the quantity of the variable input for a given quantity of the fixed input.

A fixed input

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

A variable input

is an input whose quantity the firm can vary at any time.

The long run

is the period in which all inputs can be varied.

The short run

is the period in which at least one input is fixed.

A production function

is the relationship between the quantity of inputs a firm uses and the quantity of output it produces.

There are increasing returns to scale (economies of scale) when

long-run average total cost declines as output increases.

There are decreasing returns to scale (diseconomies of scale) when

long-run average total cost increases as output increases.

There are constant returns to scale when

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

The marginal cost curve intersects the average total cost curve from below, crossing it at its

lowest point.

The relationship between inputs and output is

positive but not constant: marginal product of labor changes along the production function.

The total cost curve becomes

steeper as more output is produced, a result of diminishing returns.

So the MPL of each worker is higher when

the farm is larger; the MPL curve shifts up also.

marginal cost is

upward sloping because of diminishing returns.

Average variable cost also is

upward sloping but is flatter than the marginal cost curve.