Chapter 8
expansion path
a line formed by connecting the points of tangency between isocost lines and the highest respective attainable isoquants
isocost line
a line that identifies all the combinations of capital and labor that can be purchased at a given total cost
minimum efficient scale
the scale of operations at which average cost per unit reaches a minimum
total cost (TO)
the sum of total fixed and total variable cost at each output level
average fixed cost (AFC)
total fixed cost divided by the amount of output
average variable cost (AVC)
total variable cost divided by the amount of output
golden rule of cost minimization
a rule that says that to minimize cost, the firm should employ inputs in such a way that the marginal product per dollar spent is equal across all inputs
economies of scale
a situation in which a firm can increase its output more than proportionally to its total input cost
diseconomies of scale
a situation in which a firm's output increases less than proportionally to its total input cost
learning by doing
improvements in productivity resulting from a firm's cumulative output experience
marginal cost (ME)
the change in total cost that results from a one unit change in output
total variable cost (TVC)
the cost incurred by the firm that depends on how much output it produces
total fixed cost (TFC)
the cost incurred by the firm that does not depend on how much output it produces
input substitution effect
the effect of a change in the price of an input on a firm's relative use of the input to produce a given level of output
