Chapter 6 Flashcards
Firm
any business entity that produces and sells goods or services.
Production
the process by which the transformation of inputs to outputs occurs.
Physical Capital
any good, including machines and buildings, used for production.
The Short Run
a period of time when only some of a firm’s inputs can be varied.
The Long Run
a period of time when all of a firm’s inputs can be varied.
A Fixed Factor of Production
an input that cannot be changed in the short run.
A Variable Factor of Production
an input that can be changed in the short run.
Marginal Production
the change in total output associated with using one more unit of input.
Specialization
the result of workers developing a certain skill set in order to increase total productivity.
The Law of Diminishing Returns
states that successive increases in inputs eventually lead to less additional output.
The Cost of Production
what a firm must pay for its inputs.
Total Cost
the sum of variable and fixed costs.
A Variable Cost (VC)
the cost of variable factors of production, which change along with a firm’s output.
A Fixed Cost (FC)
the cost of fixed factors of production, which a firm must pay even if it produces zero output.
Average Total Cost (ATC)
the total cost divided by the total output.
Average Variable Cost (AFC)
the total fixed cost divided by the total output.
Marginal Cost (MC)
the change in total cost associated with producing one more unit of output. ( = Change is the total cost divided by change in output)
Revenue
the amount of money the firm brings in from the sale of outputs. (Total Revenue = price times quantity sold)
Marginal Revenue (MR)
the change in total revenue associated with producing one more unit of output.
The Profits
a firm are equal to its revenues minus its costs.
Accounting Profits
equal to total revenue minus explicit costs.
Economic Profits
equal to total revenue minus both explicit and implicit costs.
Price Elasticity of Supply
the measure of how responsive quantity supplied is to price changes.
Shutdown
a short-run decision to not produce anything during a specific period.
Sunk Cost
costs that, once committed, can never be recovered and should not affect current and future production decisions.
Producer Surplus
the difference between the market price and the marginal cost curve.
Economies of Scale
occurs when ATC falls as the quantity produced increases.
Constant Returns to Scale
exist when ATC does not change as the quantity produced changes.
Diseconomies of Scale
occur when ATC rises as the quantity produced increases.
Exit
a long-run decision to leave the market.
Free Entry
an industry when entry is unfettered by any spe- cial legal or technical barriers.
Free Exit
an industry when exit is unfettered by any special legal or technical barriers.
