Chapter 34 - Types of cost, revenue and profit, short-run and long-run production Flashcards
Economies of Scale
The benefits gained from falling long-run average costs as the scale of output increases.
Isoquant
A Curve showing combinations of labor and capital to produce a given level of output.
Total Product
The same as total output.
Production Function
The maximum possible output from a given set of factor inputs.
Marginal Product
The change in output arising form the use of one more unit of a factor of production.
Law Of Diminishing Returns
Where the output from an additional unit of input leads to a fall in the marginal product; also known as the law of variable proportions.
Average Product
Total product divided by the number of workers employed; a simple measure of productivity
Profit maximization
The assumed objective of a firm; the difference between total revenue and total cost is at a maximum.
Fixed Costs
Costs that are independent of output in the short run.
Variable Costs
Costs that vary directly with output in the short run.
Average Fixed Cost
Total Fixed Cost / Output
Average Variable Cost
Total Variable Cost / Output
Average Total Cost
Total Cost / Output
Marginal Cost
Change In Total Cost / Change In Output
Marginal Product
Marginal Product Of A / Price Of Factor A = Marginal Product Of B / Price Of Factor B = Marginal Product Of C / Price Of Factor C
Isocosts
Lines of constant relative costs for factors of production.
Increasing Returns To Scale
Where output increases at a proportionately faster rate than the increase in factor inputs.
Decreasing Returns To Scale
Where factor inputs increase at a proportionately faster rate than the increase in output.
Minimum Efficient Scale
Lowest level of output at which costs are minimized.
Diseconomies Of Scale
Where long-run average costs increase as the scale of output increases.
External Economies Of Scale
Cost savings accruing to all firms as the scale of the industry increases.
Total Revenue
A firm’s total sales or earning over a given period of time.
Total Revenue = Price * Number of Units Sold
Average Revenue
Revenue per unit of output.
Average Revenue = Total Revenue / Per Unit of Output
Marginal Revenue
The additional or extra revenue gained from the sale of one more unit of output.
Marginal Revenue = Change In Total Revenue / Change In Output
Price Taker
A firm that is not able to influence market price.
Price Maker
A firm that can choose what price to sell its goods in the market.
Profit
The difference between total revenue and total costs.
Normal Profit
A cost of production that is just sufficient for a firm to keep operating in a particular industry.
Super Normal Profit / Abnormal Profit
That which is earned above normal profit.
Subnormal Profit
That which is earned below normal profit.
