Chpt 8: Technology, Production, and Costs Flashcards
Technology
The processes a firm uses to turn inputs into outputs of goods and services
Technological Change
A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs
Short Run in Economics
The period of time during which at least one of a firm’s inputs is fixed
Long Run in Economics
The period of time in which a firm can vary all its inputs, adopt new technology, and increase and 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
(Raw materials, credit card fees costs that
What is the equation for Total cost?
Total cost = Fixed Cost + Variable cost (TC = FC + VC)
Fixed Costs
Costs that remain constant as output changes
(Rent, salaries, utility bills, insurance. things you have to pay for regardless of how much you sell)
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 non monetary opportunity cost (not recorded for accounting purpose)
Production Function
The relationship between the inputs employed by a firm and the maximum output by a firm and the maximum output the firm 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 (first person brings in 200 quantity of products produced second brings in 250 and third lowers it by bringing in 100)
Law of diminishing returns
The principle that, at some point, adding more of a variable input, such as capital, will cause the marginal product of the variable input to decline
Division of Labor
The Work is divided up to improve efficiency at a certain point the improvement of production starts to plateau
Diminishing returns
When the division of labor starts to plateau
Average product of Labor
The total output produced by a firm divided by the quantity of workers (Divide the quantity produced by the number of workers)
Marginal Cost
The Change in a firm’s total cost from producing one more unit of a good or service (Can be calculated by dividing the change in total cost by the change in output MC= Change in Total Cost/Change in Quantity(output) )
Average Fixed Cost
Fixed cost divided by the quantity of output produced (Fixed cost/Quantity)
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 in which a firm’s long-run average cost falls 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 cost rises as the firm increases output
