Chapter 6: The Firm's Costs Flashcards
profits
the money the business receives from selling its products minus the cost of producing those products
profits = revenue - costs
factors of production
labor, materials (raw resources and intermediate goods - supplies purchased from other firms), capital goods; what the firm uses to produce these goods
marginal product
increase in output corresponding to a unit increase in any factor of production
fixed costs
costs of inputs remain constant as production varies (within limits)
variable costs
costs of inputs that vary with level of production
total costs
sum of fixed and variable costs
marginal costs
extra cost corresponding to each additional unit of production
average cost
total cost divided by output, typically U shaped
average variable costs
total variable costs divided by output
constant returns to scale
all inputs are increased in proportion and output then increases by the same proportion
diminishing returns to scale
all inputs are increased in proportion, outputs increase proportionally less
increasing returns to scale (economies of scale)
increasing all inputs in proportion leads to a more than proportionate increase in output
principle of substitution
when the price of one input increases relative to that of other factors of production, firms will substitute cheaper inputs for the more costly factor
joint products
products that are produced naturally together
economies of scope
it is less expensive to produce a set of goods together than separately
