Chapter 7 Flashcards
Average Fixed Cost
Total fixed cost divided by the quantity of output produced
Average total cost
Total cost divided by the quantity of output produced
Average variable cost
Total variable cost divided by the quantity of output produced
Business firm
An organization, owned and operated by private individuals, that specializes in production
Constant returns to scale
Long run average total cost is unchanged as output increases
Diminishing Marginal Returns to Labor
The marginal product of labor decreases as more labor is hired
Diseconomies of Scale
Long run average total cost increases as output increases
Economies of Scale
Long-run average total cost decreases as output increases
Fixed Costs
Costs of fixed inputs, which remain constant as output changes
Fixed Input
An input whose quantity must remain constant over some time period
Increasing marginal returns to labor
The marginal product of labor increases as more labor is hired
Law of diminishing (marginal) returns
As more and more of any input is added to a fixed amount of other inputs, its marginal product will eventually decline
Least Cost Rule
A firm produces any given output level using the lowest cost combination of inputs available
Long Run
A time horizon long enough for a firm to vary all of its inputs
Long Run average total cost
The cost per unit of producing each quantity of output in the long run, when all inputs are variable
Long Run total cost
The cost of producing each quantity of output when all inputs are variable and the least cost input mix is chosen
Lumpy input
An input whose quantity cannot be increased gradually as output increases, but must instead be adjusted in large jumps
Marginal cost
The increase in total cost from producing one more unit of input
Marginal Product of Labor
The additional output produced when one more worker is hired
Minimum Efficient Scale
The lowest output level at which the firms’s LRATC curve hits bottom
Plant
The collection of fixed inputs at a firm’s disposal
Profit
Total revenue minus total cost
Short run
A time horizon during which at least one of the firms inputs cannot be varied
Sunk Cost
A cost that has been paid or must be paid, regardless of any future action being considered
