7.5 Types of cost, revenue and profit, short-run and long-run production Flashcards
Isoquant
a curve showing a particular level of output
Production function
this shows the maximum possible output from a given set of factor inputs
Marginal product
the change in output arising from the use of one more unit of factor of production
Diminishing returns
where the output from an additional unit of input leads to a fall in the marginal product
Firm
any business that hires factors of production in order to produce goods and services
Profit maximization
the assumed objective of a firm where the difference between total revenue and total cost is at a maximum
Fixed costs
those costs that are independent of output in the short run
Variable costs
those that vary directly with output, all costs are variable in the long run
Increasing returns to scale
where output increases at a proportionately faster rate than the increase in factor inputs
Decreasing returns to scale
where factor inputs increase at a proportionately faster rate than the increase in output
Economies of scale
the benefits gained from falling long run average costs as the scale of output increases
Diseconomies of scale
where long-run average costs increase as the scale of output increases
External economies of scale
cost savings accruing to all firms in an industry as the scale increases
Minimum efficient scale
lowest level of output at which costs are minimised
Normal profit
a cost of production that is just sufficient for a firm to keep operating in a particular industry
