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