Chapter 11
Variable costs
Costs that change as output changes. All costs are variable in the long run.
Explicit costs
Costs that involve spending money
Fixed Costs
Costs that remain constant as output changes. Do not exist in the long run
Technological Change
If a firm changes its ability to produce a given level of output with a given quantity of inputs
Economies of scale
Long-run average costs falling as output increases
Long Run
No inputs are fixed because firms have time to adopt new technology and change its size. All costs are variable and there are no diminishing returns. Must be long enough to allow all inputs to be altered
Diseconomies of scale
Situation in which a firm might get so large that their long-run average costs rise as the firm increases output
Average fixed cost and variable cost
fixed cost / quantity of output variable cost / quantity of output
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
Implicit costs
A non-monetary opportunity cost. Finding these involves identifying the resources used in the firm that could have been used for another beneficial purpose.
Short Run
A period of time during which at least one of a firm's inputs are fixed
Law of Diminishing Returns
Adding more of a variable input to the same amount of a fixed input will cause the marginal product of the variable input to decline
Marginal Product of Labor
The additional output a firm produces as a result of hiring one more worker
Marginal Cost
The change in a firm's cost from producing one more unit of a good or service. DELTA Total Cost / DELTA Quantity
Minimum Efficient Scale
The lowest level of output at which all economies of scale are exhausted
Constant returns to scale
The point at which growing larger does not allow more economies of scale. Long-run average costs remains unchanged as it increases output
Technology
The processes firms use to turn inputs into outputs of goods and services
Production Function
The relationship between the inputs employed and the maximum output of the firm
Average Total Cost
Total Cost / Output Average Fixed Cost + Average Variable Cost
Total Cost Equation
Total Cost = Fixed Cost + Variable Cost
Average Product of Labor
Total Output / Quantity of Workers. = Marginal Product of Labor