AGB 212 CORE REVIEWS ANSWERS AND QUESTIONS
SET A+
✔✔at ___ levels of output, as the firm expands production ___ - ✔✔low; ATC
decreases
✔✔at___production levels, as output increases____ - ✔✔higher; ATC increases
✔✔economies of scale - ✔✔a doubling of output requires less than twice the cost
✔✔diseconomies of scale - ✔✔a doubling of output requires more than twice the cost
✔✔economies of scale (long run) - ✔✔LRATC decreases as the scale of operation
increases
✔✔diseconomies of scale (long run) - ✔✔LRATC increases with the scale of operation
✔✔constant returns to scale (long run) - ✔✔LRATC stays constant as the scale of
operation increases
✔✔possible causes of economies of scale - ✔✔volume discount on purchase
manufacturing, warehousing, transportation
larger firm can burrow at lower interest rates
✔✔possible causes of diseconomies of scale - ✔✔management diseconomies
✔✔welfare economics - ✔✔study of how allocation of resources affects economics well
being, equilibrium should be high as possible
✔✔what does the market demand curve depict - ✔✔the various quantities that buyers
would want to purchase at different prices
, ✔✔utility - ✔✔the satisfaction(benefit)that a consumer expects to gain from consuming
a good or service
✔✔consumer surplus - ✔✔the maximum amount a consumer will be willing to pay for a
good; WTP-amount actually paid; always positive
✔✔producer surplus - ✔✔amount seller is paid-cost of production
✔✔classification of inputs, land - ✔✔renewable & nonrenewable resources
✔✔classification of inputs, labor - ✔✔owner and hired labor serve
✔✔classification of inputs, capital - ✔✔manufactured goods
✔✔classification of inputs, management - ✔✔product decisions
✔✔Average product of Labor - ✔✔(APL=Q/L) denotes the output/unit of labor
✔✔Marginal Product of Labor (MPL) - ✔✔denotes the additional output produces as
labor input is increased by one unit where all other inputs are fixed
✔✔increasing returns - ✔✔each additional unit of input added yields more additional
product than previous unit of input-slope would be going upwards not fast
✔✔decreasing returns - ✔✔each additional unit of input increases the output level, but
adds less than the previous unit of input
✔✔constant returns - ✔✔each additional unit of input is as productive as the previous
unit of input
✔✔negative returns - ✔✔too many cooks in the kitchen
✔✔stage I of production - ✔✔point at which MP is above AP irrational MP>AP
✔✔stage II of production - ✔✔MP=AP rational AP is at maximum
✔✔stage III of production - ✔✔TP begins to decide MP<0 irrational
✔✔scarcity - ✔✔society has less to offer than people wish to have
✔✔Marginal Benefit vs Marginal Cost - ✔✔how people make decisions to choose one
good over another when MB>MC
SET A+
✔✔at ___ levels of output, as the firm expands production ___ - ✔✔low; ATC
decreases
✔✔at___production levels, as output increases____ - ✔✔higher; ATC increases
✔✔economies of scale - ✔✔a doubling of output requires less than twice the cost
✔✔diseconomies of scale - ✔✔a doubling of output requires more than twice the cost
✔✔economies of scale (long run) - ✔✔LRATC decreases as the scale of operation
increases
✔✔diseconomies of scale (long run) - ✔✔LRATC increases with the scale of operation
✔✔constant returns to scale (long run) - ✔✔LRATC stays constant as the scale of
operation increases
✔✔possible causes of economies of scale - ✔✔volume discount on purchase
manufacturing, warehousing, transportation
larger firm can burrow at lower interest rates
✔✔possible causes of diseconomies of scale - ✔✔management diseconomies
✔✔welfare economics - ✔✔study of how allocation of resources affects economics well
being, equilibrium should be high as possible
✔✔what does the market demand curve depict - ✔✔the various quantities that buyers
would want to purchase at different prices
, ✔✔utility - ✔✔the satisfaction(benefit)that a consumer expects to gain from consuming
a good or service
✔✔consumer surplus - ✔✔the maximum amount a consumer will be willing to pay for a
good; WTP-amount actually paid; always positive
✔✔producer surplus - ✔✔amount seller is paid-cost of production
✔✔classification of inputs, land - ✔✔renewable & nonrenewable resources
✔✔classification of inputs, labor - ✔✔owner and hired labor serve
✔✔classification of inputs, capital - ✔✔manufactured goods
✔✔classification of inputs, management - ✔✔product decisions
✔✔Average product of Labor - ✔✔(APL=Q/L) denotes the output/unit of labor
✔✔Marginal Product of Labor (MPL) - ✔✔denotes the additional output produces as
labor input is increased by one unit where all other inputs are fixed
✔✔increasing returns - ✔✔each additional unit of input added yields more additional
product than previous unit of input-slope would be going upwards not fast
✔✔decreasing returns - ✔✔each additional unit of input increases the output level, but
adds less than the previous unit of input
✔✔constant returns - ✔✔each additional unit of input is as productive as the previous
unit of input
✔✔negative returns - ✔✔too many cooks in the kitchen
✔✔stage I of production - ✔✔point at which MP is above AP irrational MP>AP
✔✔stage II of production - ✔✔MP=AP rational AP is at maximum
✔✔stage III of production - ✔✔TP begins to decide MP<0 irrational
✔✔scarcity - ✔✔society has less to offer than people wish to have
✔✔Marginal Benefit vs Marginal Cost - ✔✔how people make decisions to choose one
good over another when MB>MC
