Technology Flashcards
technology
The processes a firm uses to turn inputs into outputs of goods and services.
The short run ___________
a period of time during which at least one of a firm’s inputs is fixed.
In the long run________________.
All inputs are Variables
Variable costs are
costs that change as output changes
Fixed costs are
costs that remain constant as output changes.
Total cost
Variable Costs (VC) + Fixed Costs (FC) . The cost of all the inputs a firm uses in production
Explicit cost:
A cost that involves spending money
Implicit cost:
A non-monetary opportunity cost
The items in red are
explicit costs.
The items in blue are
implicit costs: her foregone salary, the interest the money could have earned
production function
the relationship between the inputs employed and the maximum output from those inputs
average total cost
divide the total cost (TC) by the number provided (Q) . ACT= TC/Q
Why does the average total cost decrease at first when you add an additional worker (from 1 to 2 workers)
specialization & division of labor
marginal product of labor:
the additional output a firm produces as a result of hiring one more worker.
Law of diminishing returns:
At some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline.
average product of labor
the total output produced by a firm divided by the quantity of workers. Q/L- APL
marginal cost
the change in a firm’s total cost from producing one more unit of a good or service.
Total Cost=
Fixed Cost + Variable Cost
Average Total Cost (AC/Q)=
Average Fixed Cost (FC/Q) + Avergage Variable Cost (VC/Q)
long-run average cost curve
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.
At low quantities, a firm might experience economies of scale:
the firm’s long-run average costs falling as it increases the quantity of output it produces.
minimum efficient scale.
The lowest level of output at which all economies of scale are exhausted
constant returns to scale:
long-run average cost remains unchanged as it increases output.
diseconomies of scale
a situation in which a firm’s long-run average costs rise as the firm increases output.
isoquant
a curve showing all combinations of two inputs, such as capital and labor, that will produce the same level of output.
