All Flashcards
How does the concept of 'opportunity cost' apply to starting a business?
It represents the value of the next best alternative forgone, like a salary from another job.
How does 'diminishing marginal product' affect hiring decisions?
Firms will hire fewer workers as each additional worker contributes less to total output.
How does 'economic profit' influence a firm's entry into a market?
Firms are more likely to enter a market if they expect to earn a positive economic profit.
How does understanding 'fixed costs' help a business during a recession?
Businesses can better manage their expenses by identifying costs that remain constant regardless of sales volume.
How does 'increasing returns to scale' affect a company's long-term growth strategy?
It encourages expansion, as larger operations become more efficient and profitable.
How does 'negative marginal returns' affect production?
Adding more inputs decreases total production.
How do fixed costs affect short-run production decisions?
Fixed costs must be paid regardless of the production level in the short run.
How does marginal product affect a firm's decision to hire more workers?
A firm will hire more workers as long as the marginal product of labor exceeds the cost of hiring them.
How do increasing returns to scale incentivize firms?
Incentivizes firms to expand and increase production.
How does understanding variable costs help a pizza shop owner?
Helps them determine how much to produce based on the cost of ingredients.
What is 'Production'?
The process of transforming inputs into outputs.
Define 'Fixed Costs (FC)'.
Costs that do not change with the level of output.
Define 'Variable Costs (VC)'.
Costs that change with the level of output.
What is 'Total Revenue (TR)'?
The total money a firm makes from sales; TR = P * Q.
Define 'Accounting Profit'.
Total revenue minus explicit costs.
Define 'Economic Profit'.
Total revenue minus both explicit and implicit costs (opportunity costs).
What is 'Total Product (TP)'?
The total quantity of output produced.
Define 'Average Product (AP)'.
Output per unit of input; AP = TP / Inputs.
What is 'Marginal Product (MP)'?
The additional output from one more unit of input; MP = ΔTP / ΔInputs.
What are 'Increasing Returns to Scale'?
Output more than doubles when inputs double.
What are 'Decreasing Returns to Scale'?
Output less than doubles when inputs double.
What are 'Constant Returns to Scale'?
Output doubles when inputs double.
Analyze a TP curve when MP is increasing.
TP increases at an increasing rate (steeper slope).
Analyze a TP curve when MP is decreasing.
TP increases at a decreasing rate (less steep slope).
Analyze a TP curve when MP is negative.
TP is decreasing.
What does the shape of the marginal product curve indicate?
The shape indicates the stages of increasing, diminishing, and negative returns.
How is the average product curve related to the marginal product curve?
When MP is above AP, AP is increasing; when MP is below AP, AP is decreasing.
What does the intersection of the MP and AP curves signify?
It signifies the point where AP is at its maximum.
How does the slope of the total product curve relate to marginal product?
The slope of the total product curve at any point represents the marginal product at that point.
What does a downward-sloping marginal product curve indicate?
It indicates diminishing marginal returns.
How can you identify increasing returns to scale on a graph?
Difficult to identify on a simple graph, requires comparing output changes with input changes.
How can you identify decreasing returns to scale on a graph?
Difficult to identify on a simple graph, requires comparing output changes with input changes.