Economics for Managers Chapter 6 Flashcards
Long-run Production Function
A production function showing the relationship between a flow of inputs and the resulting flow of output, where all inputs are variable.
Labor-intensive Method of Production
A production process that uses large amounts of labor relative to the other inputs to produce the firm’s output.
Capital-intensive Method of Production
A production process that uses large amounts of capital equipment relative to the other inputs to produce the firm’s output.
Input Substitution
The degree to which a firm can substitute one input for another in a production process.
X-inefficiency
Inefficiency that may result in firms with market power that have fewer incentives to minimize the costs of production than more competitive firms.
Best Practices
The production techniques adopted by the firms with the highest levels of productivity.
Lean Production
An approach to production pioneered by Toyota Motor Corporation in which firms streamline the production process through strategies such as strict scheduling and small-batch production with low-cost flexible machines.
Long-run Average Cost (LRAC)
The minimum average or unit cost of producing any level of output when all inputs are variable.
Short-run Average Total Cost (SATC)
The cost per unit of output for a firm of a given size or scale of operation.
Economies of Scale
Achieving lower unit costs of production by adopting a larger scale of production, represented by the downward sloping portion of a long-run average cost curve.
Diseconomies of Scale
Incurring higher unit costs of production by adopting a larger scale of production, represented by the upward sloping portion of a long-run average cost curve.
Learning by Doing
The drop in unit costs as total cumulative production increases because workers become more efficient as they repeat their assigned tasks.
Minimum Efficient Scale (MES)
That scale of operation at which that long-run average cost curve stops declining or at which economies of scale are exhausted.
