Chapter 11 Flashcards
(23 cards)
Average fixed cost
Fixed cost divided by the quantity of output produced
Average product of labor
The total output produced by a firm divided by the quantity of workers.
Average total cost
Total cost divided by the quantity of output produced
Average variable cost
Variable cost divided by the quantity of output produced
Constant returns to scale
The situation in which a firm’s long-run average costs remain unchanged as it increases output.
Diseconomies of scale
The situation in which a firm’s long-run average cost rises as the firm increases output.
Economics of scale
The situation in which a firm’s long-run average cost falls as it increases the quantity of output it produces
Explicit cost
A cost that involves spending money
Fixed costs
Costs that remain constant as output changes
Implicit cost
A non-monetary opportunity cost.
Law of diminishing returns
The principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline
Long run
The period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant.
Long-run average cost curve
A curve that shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed.
Marginal cost
The change in a firm’s total cost from producing one more unit of a good or service.
Marginal product of labor
The additional output a firm produces as a result of hiring one more worker
Minimum efficient scale
The level of output at which all economics of scale are exhausted
Opportunity cost
The highest-valued alternative that must be given up to engage in an activity
Production function
The relationship between the inputs employed by a firm and the maximum output the firm can produce with those inputs
Short run
The period of time during which at least one of a firm’s inputs is fixed
Technological change
A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs
Technology
The processes a firm uses to turn inputs into outputs of goods and services
Total cost
The cost of all the inputs a firm uses in production
Variable costs
Costs that change as output changes.
