1. Chapter 5 Section 2

2. A Basic Question owners have to answer is how many workers to hire.
To answer this question owners have to consider how the number of workers they hire will affect their production.

3. An example is workers at a bean bag factory
An example is workers at a bean bag factory. One worker can produce four bean bags per hour, but two can produce ten.
As new workers join a factory, total output increases.

4. Marginal product of labor-The change in output from hiring one more worker.
Increasing marginal returns- specialization increases output per worker, so the second worker adds more to the output than the first.

5. Diminishing marginal returns- Adding more workers increases total output , but at a decreasing rate.

6. Fixed cost- A cost that does not change, no matter how much of a good is produced.

7. Variable cost- Costs that rise or fall depending on the quantity produced.
Total cost- Fixed costs and variable costs are added together.
Marginal cost- The additional cost of producing one more unit.

8. Marginal revenue- the additional money made by selling one more item.
Operating cost- The cost of operating a facility.

9. The ideal level of output is where marginal revenue is equal to marginal cost.
If a firm has no control over the market price, marginal revenue equals the market price.

10. In a market economy specialization increases output per worker.
A firm with diminishing marginal returns of labor will produce less and less output from each additional unit of labor added to the mix.

11. Firms suffer from diminishing marginal returns from labor because its workers must work with a limited amount of capital.

12. How does the Marginal Product of Labor change as more workers are hired?
The amount of money that they have goes down

13. What is the impact of Diminishing Marginal Returns to labor?
The firm will produce less and less out put from each additional labor that is added to them.

14. What is an example of a Fixed Cost and a Variable Cost?
Fixed Cost: Building Equipment
Variable Cost: Raw Materials

15. How does a firm calculate Marginal Cost?
They will know the total cost of several layers of out put.

16. What would happen if the price of a bean
bag suddenly rose from $24.00 to $37.00?
Thinking of the margin we would predict that the firm would increase production to 12 bean bags an hour

17. Behind all the decisions about how many workers to hire, what
is the firms basic goal?
To maximize profits

18. What is a Marginal Cost?
It is the additional cost of producing one or more units.

19. What do variable cost include?
The cost of beans, fabric and most of the workers hired to produce the bean bags.

20. Why does the firm suffer from diminishing marginal returns from labor?
Because its workers must work with only a limited amount of capital.

21. What is one of the basic questions any business owner has to answer?
How many workers to hire.