Chapter 19

law of diminishing marginal returns

A law of economics stating that, as the number of new employees increases, the marginal product of an additional employee will at some point be less than the marginal product of the previous employee.

explicit costs

An explicit cost is a direct payment made to others in the course of running a business, such as wage, rent and materials, as opposed to implicit costs, which are those where no actual payment is made.

marginal cost

Extra cost of producing one additional unit of production., ChangeTC/ChangeQ

total costs

Fixed Costs + Variable Costs

Fixed Variable

Fixed costs are costs that are independent of output. These remain constant- rent, machinery etc

Average Variable

In economics, average variable cost (AVC) is a firm's variable costs (labor, electricity, etc.) divided by the quantity (Q) of output produced. Variable costs are those costs which vary with output.

long and short run

Long run- Period when firm can change all inputs, including its plant size and equipment. Also, period when firms can enter or exit industry Short run- period when firm can change some inputs, but not all of its inputs

total variable costs

Production costs that ∆ w/ the level of output

Accounting profit

Profits ignoring implicit costs. equals total revenue less explicit costs

Total Costs

Total cost refers to the total expense incurred in reaching a particular level of output; if such total cost is divided by the quantity produced, average or unit cost is obtained. A portion of the total cost known as fixed cost—e.g., the costs of a building lease or of...

total fixed costs

all the expenses that remain the same no matter how many products are made or sold

economies of scale

When a long run average total cost falls as output expands. Results when a given increase in all inputs results in a more than proportional increase or output

diseconomies of scale

When long run average total costs goes up as output expands. results when a given increase in all input results in a smaller than proportional increase in output

long run average cost

a curve showing 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

implicit costs

owners time and investment, In economics, an implicit cost, also called an imputed cost, implied cost, or notional cost, is the opportunity cost equal to what a firm must give up in order to use factors which it neither purchases nor hires.

economic profit

payment in excess of what is necessary to get something done. Economic profit= total revenue - (Explicit +implicit costs)

marginal physical product

the change in total output associated with one additional unit of input

Constant return to scale

when long run average total cost stays the same as output expands. results when a given increase in all inputs increases output in the proportion