Chapter 11: Technology, Production, and Costs Flashcards
technology
the processes a firm uses to turn inputs into outputs of goods and services
technological change
a change in the ability of a firm to produce a given level of output with a given quantity of inputs
short run
the period of time during which at least one of a firm’s inputs is fixed
long run
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
total cost
the cost of all the inputs a firm uses in production
variable costs
costs that change as output changes
fixed costs
costs that remain constant as output changes
opportunity cost
the highest-valued alternative that must be given up to engage in an activity
explicit cost
a cost that involves spending money
implicit cost
a nonmonetary opportunity cost
production function
the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs
average total cost
total cost divided by the quantity of output produced
marginal product of labor
the additional output a firm produces as a result of hiring one more worker
law of diminishing returns
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
average product of labor
the total output produced by a firm divided by the quantity of wokers
marginal cost
the change in a firm’s total cost from producing one more unit of a good or service
average fixed cost
fixed cost divided by the quantity of output produced
average variable cost
variable cost divided by the quantity of output produced
long-run average cost curve
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
economies of scale
the situation when a firm’s long-run average costs fall as it increases the quantity of output it produces
constant returns to scale
the situation in which a firm’s long-run average costs remain unchanged as it increases output
minimum efficient scale
the level of output at which all economies of scale are exhausted
diseconomies of scale
the situation in which a firm’s long-run average costs rise as the firm increases output
isoquant
a curve that shows all the combinations of two inputs, such as capital and labor, that will produce the same level of output
marginal rate of technical substitution (MRTS)
the rate at which a firm is able to substitute one input for another while keeping the level of output constant
isocost line
all the combinations of two inputs, such as capital and labor, that have the same total cost
expansion path
a curve that shows a firm’s cost-minimizing combination of inputs for every level of output
