Chapter 11: Technology, Production, and Costs

Question 1

technology

Answer 1

the processes a firm uses to turn inputs into outputs of goods and services

Question 2

technological change

Answer 2

a change in the ability of a firm to produce a given level of output with a given quantity of inputs

Question 3

short run

Answer 3

the period of time during which at least one of a firm’s inputs is fixed

Question 4

long run

Answer 4

the period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant

Question 5

total cost

Answer 5

the cost of all the inputs a firm uses in production

Question 6

variable costs

Answer 6

costs that change as output changes

Question 7

fixed costs

Answer 7

costs that remain constant as output changes

Question 8

opportunity cost

Answer 8

the highest-valued alternative that must be given up to engage in an activity

Question 9

explicit cost

Answer 9

a cost that involves spending money

Question 10

implicit cost

Answer 10

a nonmonetary opportunity cost

Question 11

production function

Answer 11

the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs

Question 12

average total cost

Answer 12

total cost divided by the quantity of output produced

Question 13

marginal product of labor

Answer 13

the additional output a firm produces as a result of hiring one more worker

Question 14

law of diminishing returns

Answer 14

the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline

Question 15

average product of labor

Answer 15

the total output produced by a firm divided by the quantity of wokers

Question 16

marginal cost

Answer 16

the change in a firm’s total cost from producing one more unit of a good or service

Question 17

average fixed cost

Answer 17

fixed cost divided by the quantity of output produced

Question 18

average variable cost

Answer 18

variable cost divided by the quantity of output produced

Question 19

long-run average cost curve

Answer 19

a curve that shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed

Question 20

economies of scale

Answer 20

the situation when a firm’s long-run average costs fall as it increases the quantity of output it produces

Question 21

constant returns to scale

Answer 21

the situation in which a firm’s long-run average costs remain unchanged as it increases output

Question 22

minimum efficient scale

Answer 22

the level of output at which all economies of scale are exhausted

Question 23

diseconomies of scale

Answer 23

the situation in which a firm’s long-run average costs rise as the firm increases output

Question 24

isoquant

Answer 24

a curve that shows all the combinations of two inputs, such as capital and labor, that will produce the same level of output

Question 25

marginal rate of technical substitution (MRTS)

Answer 25

the rate at which a firm is able to substitute one input for another while keeping the level of output constant

Question 26

isocost line

Answer 26

all the combinations of two inputs, such as capital and labor, that have the same total cost

Question 27

expansion path

Answer 27

a curve that shows a firm’s cost-minimizing combination of inputs for every level of output