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