CH 6 Flashcards
Short run
A planning period over which the managers of a firm must consider one or more of their factors if production as a fixed quantity
Fixed factor of production
A factor of production whose quantity cannot be changed during a particular period
Variable factor of production
A factor of production whose quantity can be changed during a particular period
Long run
The planning period over which a firm can consider all factors of production as variable
Production function
The relationship between factors of production and the output of a firm
A total product curve
Graph that shows the quantities of output that can be obtained from different amounts of a variable factor of production, assuming other factors of production are fixed
Marginal product
The amount by which output rises with an additional unit of a variable factor
Marginal product of labor
The amount by which output rises with an additional unit of labor
Average Product
The output per unit of variable factor
Average product of labor
The ratio of output to the number of units of labor
Increasing marginal returns
The range over which each additional unit of a variable factor adds more to total output than the previous unit
Diminishing marginal returns
The range over which each additional unit of a variable factor adds less to total output than the previous unit
Negative marginal returns
The range over which additional units of a variable factor reduce total output, given constant quantities of all other factors
Law of diminishing marginal returns
The marginal product of any variable factor of production will eventually decline, assuming the quantities of other factors of production are unchanged
Variable costs
The costs associated with the use of variable factors of production
Fixed costs
The costs associated with the use of fixed factors of production
Total Variable cost
Cost that varies with the level of output
Total fixed cost
Cost that does not vary with output
Total cost
The sum of total variable cost and total fixed cost
Average total cost
Total cost divided by quantity; it is the firms total cost per unit of output
Average variable cost
Total variable cost divided by quantity; it is the firms total variable cost per unit of output
Average fixed cost
Total fixed cost divided by quantity
Capital intensive
Situation in which a firm has a high ratio of capital to labor
Labor intensive
Situation in which a firm has a high ratio of labor to capital
Economies of scale
Situation in which the long run average cost declines as the firm expands its output
Diseconomies of scale
Situation in which the long run average cost increases as the firm expands its output
Constant returns to scale
Situation in which the long run average cost stays the same over an output range
Perfect competition
Model of the market based on the assumption that a large number of firms produce identical goods consumed by a large number of buyers
Price takers
Individuals or firms who must take the market price as given
Monopoly
A firm that is the only producer of a good or service for which there are no close substitutes and for which entry by potential rivals is prohibitively difficult
Price setter
A firm that sets or picks price based on its output decision
Imperfect competition
A market structure with more than one firm in an industry in which at least one firm is a price setter
Monopolistic competition
A model characterized by many firms producing similar but differentiated products in a market with easy entry and exit
Oligopoly
Situation in which a market is dominated by a few firms, each of which recognizes that its own actions will produce a response from its rivals and that those responses will affect it
