Economics CFA

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Anonymous
ID:
33588
Filename:
Economics CFA
Updated:
2010-09-09 00:44:45
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Econ
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Description:
Reading 17 - Output and Costs
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  1. Sunk cost
    Past expenditure on a plant that has no resale value
  2. relationship between output and the quantity of labor employed can be described by using 3 diff. concepts
    • 1) Total product
    • 2) Marginal product
    • 3) Average product
    • These concepts can be illustrated by product schedules or product curves
  3. 1) Total product
    2) Marginal product
    3) Average product
    • 1) the maximum output that a given quantity of labor can produce
    • 2) the increase in total product that results from a one-unit increase in the quantity of labor employed with all other inputs remaining the same
    • 3) total product divided by the quantity of labor employed - tells how productive workers are on the average
  4. The law of diminishing returns
    As a firm uses more of a variable factor of production, with a given quantity of the fixed factor of production, the marginal product of the variable factor eventually diminishes.
  5. Relationship between output and cost can be described using three cost concepts
    • 1) Total cost
    • 2) Marginal cost - an increase in total cost from a one-unit increase in output (increase in total cost/increase in output)
    • 3) Average cost - U shape comes from spreading total fixed cost over a larger output and eventually diminishing returns
  6. The position of a firm's short-run cost curves depends on two factors:
    • 1) technology
    • 2) price of factors of production
  7. marginal product of capital
    change in the total product divided by the change in capital when the quantity of labor is constant
  8. long-run average cost curve
    • relationship between the lowest attainable average total cost and output when both the plant size and labor are varied.
    • tells firm plant size and quantity of labor to use at each output to minimize cost
  9. diseconomies of scale
    features of a firm's technology that lead to rising long-run average cost as output increases
  10. constant returns to scale
    features of a firm's technoogy that lead to constant long-run average cost as output increases. when constant returns to scale are present the LRAC curve is horizontal.
  11. minimum efficient scale
    the smallest quantity of output at which long-run average cost reaches its lowest level

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