Chapter 10: Output and Cost Flashcards
Average Fixed Cost
Total fixed cost per unit of output.
Average Product
Average product of a factor of production. It equals total product divided by the quantity of the factor employed.
Average Total Cost
Total cost per unit of output.
Average Variable Cost
Total variable cost per unit of output.
Constant Returns to Scale
Features of a firm’s technology that lead to constant long-run average cost as output increases. When constant returns to scale are present, the LRAC curve is horizontal.
Diminishing Marginal Returns
Tendency for the marginal product of an additional unit of a factor of production to be less than the marginal product of the previous unit of the factor.
Diseconomies of Scale
Features of a firm’s technology that make average total cost rise as output increases—the LRAC curve slopes upward.
Economic Depreciation
Fall in the market value of a firm’s capital over a given period.
Economic Profit
Firm’s total revenue minus its total cost, with total cost measured as the opportunity cost of production.
Economies of Scale
Features of a firm’s technology that make average total cost fall as output increases—the LRAC curve slopes downward.
Firm
Economic unit that hires factors of production and organizes those factors to produce and sell goods and services.
Implicit Rental Rate
Firm’s opportunity cost of using its own capital.
Law of Diminishing Returns
Firm uses more of a variable factor of production with a given quantity of the fixed factor of production, the marginal product of the variable factor of production eventually diminishes.
Long Run
Time frame in which the quantities of all factors of production can be varied.
Long-run Average Cost Curve
Relationship between the lowest attainable average total cost and output when the firm can change both the plant it uses and the quantity of labour it employs.
Marginal Cost
Opportunity cost of producing one more unit of a good or service. It is the best alternative forgone. It is calculated as the increase in total cost divided by the increase in output.
Marginal Product
Increase in total product that results from a one-unit increase in the variable input, with all other inputs remaining the same. It is calculated as the increase in total product divided by the increase in the variable input employed, when the quantities of all other inputs remain the same.
Minimum Efficient Scale
Smallest quantity of output at which the long-run average cost reaches its lowest level.
Normal Profit
Return to entrepreneurship is normal profit and it is the profit that an entrepreneur earns on average.
Short Run
Time frame in which the quantity of at least one factor of production is fixed and the quantities of the other factors can be varied. The fixed factor is usually capital—that is, the firm uses a given plant.
Sunk Cost
Past expenditure on a plant that has no resale value.
Total Cost
Cost of all the productive resources that a firm uses.
Total Fixed Cost
Cost of the firm’s fixed inputs.
Total Variable Cost
Cost of all the firm’s variable inputs.
Total Product
Maximum output that a given quantity of labour can produce.
