Key terms - Output and costs Flashcards
Average fixed cost (AFC)
Total fixed cost per unit of output.
Average product
Tells us how productive workers are on average.
Average total cost (ATC)
The total cost per unit of output.
ATC = AFC + AVC.
Average variable cost (AVC)
Total variable cost per unit of output.
Diminishing marginal returns
Occur when the marginal product of an additional worker is less than the marginal product of the previous worker.
Law of diminishing returns
As a firm uses more of a variable factor of production, with a given quantity of the fixed factor of production, the marginal product of the variable factor eventually diminishes.
Long run
A time frame in which the quantities of all factors of production can be varied.
Long-run average cost curve
The relationship between the lowest attainable average total cost and output when both plant size and labour are varied.
Marginal cost
The change in total cost resulting from a one-unit increase in output. MC is calculated as the change in TC divided by the change in output (Q).
Marginal product
(of labour) is the increase in total product resulting from a one-unit increase in the quantity of labour employed with all other inputs remaining the same.
Short run
A time frame in which the quantity of at least one factor of production is fixed.
Sunk cost
The past expenditure on a plant that has no resale value.
Total cost
The cost of all the factors of production it uses.
Total fixed cost (TFC)
The cost of the firm’s fixed factors.
Total product
The maximum output that a given quantity of labour can produce.
