Chapter 22

Proudction

Any activity that results in the conversion of resources and products.

Fixed Costs

Costs that do not vary with output. Fixed costs typically include such as expenses as rent on a building. These costs are fixed for a certain period of time.(In long run, though, they are variable.)

Variable Costs

Costs that vary with the rate of production. They include wages paid to workers and purchases of materials.

Economies of scale

Decreases in long-run average costs resulting from increase in output.

Diseconomies of Scale

Increase in long-run average costs that occur as outputs increases.

Constant returns to scale

No change in long-run average costs when outputs increase.

Marginal costs

The change in total costs due to a one-unit change in production rate.

Long-run average cost curve

The locus point representing the minimum unit cost of producing any given rate of output, given current technology and resources prices.

Planning Horizon

The long run, during which all inputs are variable.

Planning Curve

The long-run average cost curve.

Minimum efficient scale (MES)

The lowest rate of output per unit time at which long-run average costs for a particular firm are at a minimum.

Law of Diminishing Marginal Product

The observation that after some point, successive equal-sized increases in a variable factor of production, such as labor, added to fixed factors of production will result in smaller increases in output.

Marginal Product

The output that is due to the addition of one or more unit of a variable factor of production. The change in total products occurring when a variable input is increased and all other inputs are held constant. It is also called Marginal Product.

Proudction Function

The relationship between inputs and maximum output. A production function is technological, not an economic relationship.

Plant size

The size of the factories that a firm owns and operates to produce its output. Plant size can be defined by square footage, maximum capacity, and other measures of the scale of production of good or services.

Total Costs

The sum of total foxed costs and total variable costs.

Long Run

The time period during which all factors of production can be varied.

Short Run

The time period during which at least one input, such as plant size, cannot be changed.

Average total costs

Total cost divided by the number of units produced; sometimes called average per-unit total costs

Average fixed costs

Total fixed costs divided by the number of units produced.

Average Product

Total product divided by the variable input.

Average variable costs

Total variable cost divided by the number of units produced.