Unit 3 Flashcards

Total Product (TP)

Output made with a specific number of workers, e.g., 5 workers make 10 clocks.

Marginal Product (MP)

Extra output obtained from adding one additional resource.

Average Product (AP)

Labor productivity calculated as Total Revenue (TR) divided by Units of Labor.

3 stages of production are what and what do they mean

Increasing - Marginal product is increasing by each unit of labor, and TP is increasing

Diminishing - MP is decreasing by each unit of labor, but TP still increasing

Negative - TP is now decreasing

When MP > AP, what happens to AP?

When MP < AP, what happens to AP?

What occurs at the intersection of MP and AP?

AP is rising

AP is falling

AP is at its maximum.

Fixed Costs (FC)

Costs that remain unchanged when quantity (Q) changes.

Variable Costs (VC)

Costs that change when quantity (Q) changes.

Total Costs (TC) formula

Total Costs (TC) equals Fixed Costs (FC) plus Variable Costs (VC).

(AVC)Average Variable Costs formula

VC/Q

(ATC)Average Total Costs

TC/Q OR AFC + AVC

(AFC)Average Fixed Costs

FC/Q

(MC)Marginal Cost

∆TC(change in TC)/∆Q(change in Q)

As MP increases what happens to MC?

AS MP decreases what happens to MC?

MC is minimized when?

MC decreases as MP increases

MC increases as MP decreases

MC is minimum when MP is maximum

As AP increases what happems to AVC?

As AP decreases what happens to AVC?

When AP is maximized what happens to AVC?

AVC decreases as AP increases

AVC increases as AP decreases

AVC is minimized when AP is maximized

What is short run loss and how does it happen?

When MC(where MR = MC) < ATC but MC > AVC

Continue producing since FC can still be paid, and AVC can be lowered until there is profit

What is a short run shutdown and how does it happen

When MC(where MR = MC) < AVC

Stop producing since FC can’t be paid no matter what, since FC doesn’t change

Market and Firm Profit is maximized when?

At the quantity where the MC = MR(or sometimes the last quantity where MC < MR

What is short run profit and how does it happen?

When MC(where MR = MC) > ATC

Keep producing as you are gaining money

Compare a SR(short run) single firm perf comp equilibrium to an industry equilibrium

Both caused by meeting of S(MC in single firm) and D(MR in single firm) curves

But in single firm equilibrium demand can not change, in industry supply and demand can change equilibrium

What is a break-even point?

Where MC=MR is = ATC

No profit, meaning firm can’t do any better, so it should continue to produce

Economies of Scale(ATC decrease)

1. Labor Specialization » dividing jobs as workers increase

2. Managerial Specialists » individuals focusing on specific areas of management

3. Efficient (human/physical)capital use » less production = less equipment and vice-versa

4. Start-up costs decline overtime

5. Ad costs decline as selling increases

Diseconomies of scale(ATC increase)

Decrease scale/efficiency of operations as firm grows