Chapter 12 Flashcards
To make a product, firms look to
Firms look at costs of various inputs, processes, and technologies available for combining these inputs
What is technical efficiency?
Technical efficiency in production means that as few inputs as possible are used to produce a given output
What is the economically efficient method?
The economically efficient method of production is the method that produces a given level of output at the lowest possible cost.
economies scale
Production exhibits economies of scale when long-run average total costs decrease as output increases
What is an invisible set up cost?
An indivisible setup cost is the cost of an indivisible input for which a certain minimum amount of production must be undertaken before the input becomes economically feasible to use
What is the minimum efficient level of production?
The minimum efficient level of production is the amount of production that spreads setup costs out sufficiently for firms to undertake production profitably
what is diseconomies of a scale?
Production exhibits diseconomies of scale when long-run average total costs increase as output increases
Diseconomies of scale usually, but not always, start occurring as firms get large
What are monitoring costs?
Monitoring costs: incurred by the organizers of production in seeing that the resources and employees are producing effectively.
what is team spirit?
Team spirit: the feelings of friendship and being part of a team that brings out peoples’ best effort.
What is the scope?
Scope: The size or variety of the effort increases dramatically; technology develops and changes
What are constant returns scale?
Firms experience constant returns to scale when long-run average total costs do not change as output increases
Constant returns to scale occur when production techniques can be replicated again and again to increase output
What is an envelope relationship?
There is an envelope relationship between long-run and short-run average total costs. Each short-run cost curve touches the long-run cost curve at only one point.
What is an entrepreneur
An entrepreneur sees an opportunity to sell an item at a price higher than the average cost of producing it
What are economies of a scope?
There are economies of scope when the costs of producing goods are interdependent so that it is less costly for a firm to produce one good when it is already producing another
What is learning by doing?
Learning by doing means that as we do something, we learn what works and what doesn’t, and over time we become more proficient at it
