Chapter 11 Flashcards
Technology
The processes a firm uses to turn inputs into outputs
Technological change
A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs
Example of technological change
New machinery (Positive) Lay off of workers(Negative)
Short run vs long run
Short run: The period of time during which at least one of a firm’s inputs is fixed.
Long run: The firm can vary all of its inputs, adopt new technology and increase or decrease the size of its physical plant.
Variable cost
Costs that change as output changes
Fixed costs
Costs that remain constant as output changes
Totals costs
Totals costs = Fixed costs + Variable costs
Explicit cost
A cost that involves spending money
Implicit cost
A nonmonetary opportunity cost
Explain and illustrate the relationship between the marginal product of labor
and the average product of labor as well as marginal cost and average total
cost
When the marginal output of labour is greater than the average then the average product will also rise.
Explain how firms use the long-run average cost curve in their planning
ATC
ATC = AFC + AVC
Highest to lowest graphs
Marginal cost
ATC
AVC
AFC
minimum efficient scale
The lowest level of output at which economies of scale are exhausted
Constant returns to scale
The situation in which a firm’s long-run average cost remains unchanged as it increases output
Diseconomies of scale
A situation in which a firm’s long-run average costs rise as the firm increases output
What does an isoquant slope tell us (Marginal rate of technological substitution MRTS)
The rate at which a firm will substitute one input for another while keeping output constant.
The slope becomes less steep, meaning diminishing returns to additional units of labor.
Isocost line slope
Equal to the ratio of the prices of the inputs
