CHAPTER 22
Firm's Cost of Production
- include all the opportunity costs of making its output of goods and services - explicit costs - implicit costs
Why are there economies of scale?
-Specialization -Dimensional Factor -Improved Productive Equipment
Production
The process of creating goods and services
In the long run...
all factors of production are variable
In the short run...
at least one input is fixed
When does the marginal cost curve intersects the average variable cost curve and the average total cost curve?
at their minimum points
Long-Run Costs
average cost curve
When marginal costs are greater than average costs...
average costs must rise
When marginal cost is below average total cost...
average total cost falls
Variable Costs
costs that vary with the quantity of output produced
Specialization
division of tasks or operation
Fixed Costs
do not vary with the quantity of output produced
Firm Production
firm takes numerous inputs and combines them using a technological production process, and ends up with output
Short-Run Costs
fixed costs and variable costs
Improved Productive Equipment
larger volume machinery used within firm
Minimum efficient scale refers to the lowest rate of output per time at which...
long-run average costs for a particular firm at a minimum
If total product is increasing at a decreasing rate...
marginal product is decreasing
When the total product function begins to increase at a decreasing rate...
marginal product is falling, the law of diminishing returns has set in, and marginal cost is rising
When marginal cost is falling...
marginal product must be rising
Dimensional Factor
the ability to double output without doubling all inputs
Total Revenue
the amount a firm receives for the sale of its output
Law of Diminishing Marginal Returns
the existence of a fixed input that must be combined with increasing amounts of the variable input
Why does the marginal product of labor eventually decline as more labor is used with another fixed input?
the labor will have, on average, fewer units of the other inputs to combine with and the increases to total output obtained from more labor will decrease
Total Costs
the market value of the inputs a firm uses in production
Production Function
the relationship between quantity of inputs used to make a good and the quantity of output of that good
Minimum Efficient Scale (MES)
the smallest size at which long-run average cost is at its minimum
