Production Costs and Revenues Flashcards
Minimum Efficient Scale
The lowest output which a firm can produce at the minimum achievable LRAC (productive efficiency).
Economies of Scale
As the scale of production of a firm increases, long run average costs fall.
Diseconomies of Scale
As the scale of production of a firm increases, long run average costs rise.
Internal Economies of Scale
LRAC falling as a result of growth from the firm itself.
External Economies of Scale
LRAC falling as a result of the growth of the economy or an industry.
Increasing Returns to Scale
When an increase in factor inputs leads to a greater than proportional increase in factor output.
Decreasing Returns to Scale
When an increase in factor inputs leads to a less than proportional increase in factor output.
Technological Change
Describes the overall effect of invention, innovation and the spread of technology in the economy.
Innovation
Improving or making a significant contribution to something that has already been invented, turning it into a product.
Invention
Making something entirely new.
Normal Profit
The minimum profit a firm must make to stay in business but is insufficient to attract new firms into the market. Occurs when marginal revenue=marginal costs (including opportunity).
Supernormal Profit
Profit levels above the normal profit.
Subnormal Profit
Profit levels below the normal profit, a rational entrepreneur would leave the market.
Short Run
A time period where at least one factor of production is fixed.
Long Run
A time period where no factors of production are fixed. and all factors of production are variable.
