Chapter 7: Costs of Production Flashcards
What are fixed costs?
costs that do not vary with the quantity of output produced
What are variable costs?
costs that vary with the quantity of output produced
What is a production function?
the relationship between the quantity of inputs used to make a good and the quantity of output of that good
What’s a marginal product of labor (MPL)?
the additional production resulting from hiring the next worker
What is diminishing marginal productivity (DMP)?
the property where the marginal production of an input declines as the quantity of the input increases, holding all other inputs
What is teamwork effect?
results in increasing marginal production at low levels of production due to the specialization and the division of labor
How do you compute the average fixed cost?
fixed cost divided by the quantity of output (AFC = fixed cost /Q)
How do you compute the average variable cost?
variable cost divided by the quantity of output (AVC = variable cost/Q)
How do you compute the average total cost?
total cost divided by the quantity of output and known as AFC + AVC (ATC = total cost/Q)
How do you compute marginal cost?
the change in the Toal cost to produce one more unit or the change in the variable cost to produce one more unit (MC = delta total cost/delta Q) or (MC = delta variable cost/detla Q)
What are economies of scale?
the property whereby the long-run average total cost falls as the quantity of output increases
What are constant returns to scale?
the property whereby long-run average total cost stays the same as the quantity of output increases
What are diseconomies of scale?
the property whereby long-run average total cost rises as the quantity of output increases
