Flashcards
Theory of the Firm
Cards in this deck (27)
- 1Short run ProductionAt least one FOP is fixed- all production takes place in the short run
- 2Long run productionall factors of production are variable but the state of technology is fixed- all planning takes place in the long run
- 3Define Total Producttotal product is the total output that a firm produces using its fixed and variable factors in a given time period
- 4Define Average Productoutput that is produced on average by each unit of the variable factor- AP= TP/V
- 5Define Marginal productMP= change in total product/ change in variable
- 6Define eventually diminishing marginal returnsas extra units of a variable factor are added to a given quantity of a fixed factor, the output from each additional unit of the variable factor will eventually diminish
- 7Define eventually diminishing average returnsAs extra units of a variable factor are added to a give quantity of a fixed factor, the output per unit of the variable factor will eventually diminish
- 8Distinguish between explicit and Implicit costsExplicit costs are any costs to a firm that involve the direct payment of money
Implicit costs are the earnings that a firm could have had if it had employed its factors in another use of if it had hired out or sold them to another firm - 9Total fixed costthe total costs of fixed assets that a firm uses in a given time period
- 10Total variable coststotal cost of the variable assets that a firm uses in a given time period
- 11Total Costis the total cost of all the fixed and variable factors used to produce a certain output (fixed + variable)
- 12Average fixed costTFC/Q
- 13Average variable costTVC/Q
- 14ATCTC/Q
- 15Marginal Costchange in total cost/ change in quantity
- 16Decreasing returns to scalewhen long run average cost is rising as output increases
- 17Economies of Scaleeconomies of scale are any decreases in long-run average costs that come about when a firm alters all of its factors of production in order to increase its scale of output
- 18total revenueP x Q
- 19Average revenueTotal revenue/q
- 20marginal revenuechange in total revenue/ change in quantity
- 21explain the shut-down pricewhen a firm is able to cover their variable costs in the short run but not their fixed costs
- 22Explain the break even priceis when a firm is able to make normal profit in the long-run, it will cover all of its costs including its opportunity costs
- 23Define Diseconomies of scaleany increases in long run average costs that come about when a firm alters all of its factors of production in order to increase their scale of output
- 24Why are Short Run cost curves U- Shapedbecause of the hypothesis of diminishing returns- diminishing average returns explain the SR average variable cost curve and eventually diminishing marginal returns explain the shape of the short run marginal cost curve
- 25Why are Long- Run Cost curves U-Shaped?because of economies and diseconomies of scale
- 26What are the goals of the firm other then profit maximisation?revenue maximisation
growth maximisation
satisficing
corporate social responsibility - 27Increasing returns to scalewhen long run unit costs are falling as output increases- a given percentage increase in FOPs will lead to a greater percentage increase in output reducing long run average costs
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- ib economics (Microeconomics ) Flashcards on Theory of the Firm , created by bella.calonje on 01/04/2014.
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