CH10: Production & Cost Flashcards
Average Fixed Cost
Total fixed cost per unit of output
Average product
Total product divided by the quantity of a factor of production. The average product of labor is total product divided by the quantity of labor employed.
Average Total Cost
Total cost per unit of output, which equals average fixed cost plus average variable cost.
Average variable cost
Total variable cost per unit of output
Constant returns to scale
Features of a firm’s technology that keep average total cost constant as output increases.
Decreasing marginal returns
When the marginal product of an additional worker is less than the marginal product of the previous worker.
Diseconomies of scale
Features of a firm’s technology that make average total cost rise as output increases.
Economic depreciation
An opportunity cost of a firm using capital that it owns - measured as the change in the market value of capital over a given period.
Economic profit
A firm’s total revenue minus total cost.
Economies of scale
Features of a firm’s technology that make average total cost fall as output increases.
Explicit cost
A cost paid in money.
Implicit cost
An opportunity cost incurred by a firm when it uses a factor of production for which it does not make a direct money payment.
Increasing marginal returns
When the marginal product of an additional worker exceeds the marginal product of the previous worker.
Law of decreasing returns
As a firm uses more of a variable input, with a given quantity of fixed inputs, the marginal product of the variable input eventually decreases.
Long run
The time frame in which the quantities of all resources can be varied.
Long-run average cost curve
A curve that shows the lowest average total cost at which it is possible to produce each output when the firm has had sufficient time to change both its plant size and labor employed.
Marginal product
The change in total product that results from a one-unit increase in the quantity of labor employed.
Normal profit
The return to entrepreneurship. Normal profit is part of a firm’s opportunity cost because it is the cost of not running another firm.
Short run
The time frame in which the quantities of some resources are fixed. In the short run, a firm can usually change the quantity of labor it uses but not its technology and quantity of capital.
Total cost
The cost of all the factors of production used by a firm.
Total fixed cost
The cost of the firm’s fixed factors of production - the cost of land, capital, and entrepreneurship.
Total product
The total quantity of a good produced in a given period.
