APEC 202 Exam 2 Study Guide - APEC 202 Exam 2 Study Guide 1 APEC 202 Exam 2 Study Guide 1 Chapter 4 The Firm as a Production Unit a Perfectly

APEC 202 Exam 2 Study Guide - APEC 202 Exam 2 Study Guide 1...

This preview shows page 1 - 3 out of 14 pages.

APEC 202 Exam 2 Study Guide APEC 202 Exam 2 Study Guide 1. Chapter 4: The Firm as a Production Unit a. Perfectly Competitive Markets i. Essential Key: 1. Large Number of Buyers (Consumer Demand) & Large Number of Sellers (Producer Supply) ii. “Price Taker, not a Price Maker” iii. Example 1. Iceberg Lettuce in the Agricultural Market b. Perfectly Competitive Firms i. Economic Profit - The difference between all revenues or receipts of the firm and the value of all inputs used by the firm, whether paid or unpaid ii. Accounting Profit - Difference between all revenues or receipts of the firm and all expenses paid iii. Conditions of Perfect Competition 1. Atomistic a. So many firms, no single firm can effect prices 2. Homogeneous a. Products that are alike such that the output of one competitor cannot be distinguished from the other competitor 3. Good Knowledge 4. Easy of Entry & Exit to Market iv. Imperfect Competition 1. Example a. Military Aircraft i. Few Buyers & Few Sellers b. Automobile Industry i. Few Sellers & Many Buyers c. Live Cattle Industry i. Many Sellers & 4 Major Buyers c. Production- Process of converting inputs (factors, resources) into outputs (products); converting costs into revenues i. Fixed & Variable Inputs 1. Fixed Inputs - inputs whose use rate does not change as the output level changes. Property taxes are fixed input: they are the same whether a restaurant serves 1 customer or 100 customers 2. Variable Inputs - Inputs whose use rate changes as the output level changes ii. Length of Run 1
Image of page 1
APEC 202 Exam 2 Study Guide 1. Short Run - Period of time short enough that some inputs are considered by the manager to be fixed inputs a. Time period where at least one input is fixed. 2. Long Run - Period of time in which all inputs are considered by the manager to be variable inputs iii. Returns to Scale 1. What happens to output with a change in inputs a. Constant Returns to Scale - All inputs are increased by a given proportion, output increases by the same proportion b. Increasing Returns to Scale - All inputs are increased by a given proportion, output increases by a greater proportion c. Decreasing Returns to Scale - All inputs are increased by a given proportion, output increases by a lesser proportion d. Double inputs i. If outputs increase but by less than double, decreasing return to scale ii. Double inputs equals double outputs, constant return to scale iii. If output increases by more than double, Increasing Return to Scale iv. 3 Stage Production Function 1. Stage 1 a. Increasing Marginal Returns - As additional units of the variable input are used, output increases at an increasing rate i. Not enough variable 2. Stage 2 a. Decreasing Marginal Returns - As additional units of the variable input are used, output increases at a decreasing rate i. “Just Right” amount of input to right amount of outputs 3. Stage 3 a. Negative Marginal Returns - As additional units of the variable are used, output decreases i. Too much variable 2. Chapter 5: Costs & Optimal Output Levels a. Environment of the Firm i. Exogenous
Image of page 2
Image of page 3

You've reached the end of your free preview.

Want to read all 14 pages?

  • Fall '14
  • SmathersJrWebbM
  • APEC

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture