Econ Chapter 7

The MC curve crosses both the _______ and the ___________ at their respective minimum points

AVC, ATC

a firm's_______ curve combines portions of each _____ curve available to the firm in the long run. For each output level, the firm will always choose to operate on the _________ curve with the lowest possible cost.

LRATC, ATC

least-cost rule

a business firm will produce any given output level using the least-cost combination of inputs available to it (a firm produces any given output level using the lowest cost combination of inputs available)

the short run is

a time period during which at least one of the firm's inputs is fixed (a time horizon during which at least one of the firm's inputs cannot be varied)

the long run is

a time period long enough for a firm to change the quantity of all of its inputs. (a time horizon long enough for a firm to vary all of its inputs)

lumpy input

an input whose quantity cannot be increased gradually as output increases, but must instead be adjusted in large jumps.

fixed input

an input whose quantity must remain constant over some time period

variable input

an input whose usage can change over some time period

sunk costs should not...

be considered when making decisions

marginal cost (MC)

change in total cost (∆TC) divided by the change in output (∆Q): MC=∆TC/∆Q. The increase in total cost from producing one more unit of output

Production is the process of ...

combining inputs to make goods and services.

fixed costs

costs of fixed inputs, which remain constant as output changes.

variable costs

costs of variable inputs, which change outputs

when long-run total cost rises proportionately less than output, production is characterized by economies of scale, and the LRATC curve slopes

downward

The U shape of the ATC curve results from the behavior of both AVC and AFC. At low levels of output, AVC and AFC are both ______, so the ATC curve slopes ______. At higher levels of output, rising AVC overcomes __________ and the ATC curve slopes___________

falling, downward, falling, upward.

in the long run, there are no _______ or ________; all inputs and all costs are _______.

fixed inputs, fixed costs, variable

when both output and long-run total cost rise by the same proportion, production is characterized by constant returns to scale, and the LRATC curve is ________

flat

a firm's "cost" is its opportunity cost which includes both_________

implicit(no money changes hands) and explicit costs(involving actual payments)

The U-shape of the AVC curve results from the U-shape of the MC curve, which in turn is based on __________

increasing and then diminishing marginal returns to labor

average fixed cost (AFC)

its total fixed cost divided by the quantity (Q) of output

the long-run average cost of producing a given level of output can be ____ or _____ but not ____ the short-run average total cost

less than, equal to , greater than, (LRATC≤ATC)

the long-run total cost of producing a given level of output can be ________ or ______ but not _________ than, the short-run total cost

less than, equal to, greater than, (LRTC/Q≤TC/Q)

economies of scale

long-run average total cost decreases as output increases

diseconomies of scale

long-run average total cost increases as output increases.

constant returns to scale

long-run average total cost is unchanged as output increases

When the marginal product of labor (MPL) rises, ________ falls, When MPL falls, _____ rises. Since MPL ordinarily rises then falls, ______ will do the opposite: It will fall then rise. Thus, the __________ curve is U-shaped

marginal cost (MC)

sunk cost

one that already has been paid, or must be paid, regardless of any future action being considered

law of diminishing (marginal) returns

states that as we continue to add more of any one input (holding the other inputs constant), its marginal product will eventually decline

marginal product of labor (MPL)

the change in total product (∆Q) divided by the change in the number of workers employed (∆L). tells us the rise in output produced when one more worker is hired.

plant

the collection of fixed inputs at a firm's disposal.

total fixed costs

the cost of all inputs that are fixed in the short run

total variable cost

the cost of all variable inputs used in producing a particular level of output

long-run total cost

the cost of producing each quantity of output when all inputs are variable and the least-cost input mix is chosen.

average variable cost (AVC)

the cost of the variable inputs per unit of output: AVC=TVC/Q (total variable cost divided by the quantity of output produced.

long-run average total cost

the cost per unit of producing each quantity of output in the long run, when all inputs are variable. LRATC=LRTC/Q

minimum efficient scale

the lowest output level at which the firm's LRATC curve hits bottom

diminishing marginal returns to labor

the marginal product of labor increases as more labor is hired

increasing marginal returns to labor

the marginal product of labor increases as more labor is hired

total product

the maximum quantity of output that can be produced from a given combination of inputs

A firm's technology refers to...

the methods it can use to turn inputs into outputs (produced goods or services).

a firm's total cost of producing a given level of output is....

the opportunity cost of the owners-- everything they must give up in order to produce that amount of output.

total cost (TC)

the sum of all fixed and variable costs (the cost of all inputs-fixed and variable-used to produce a given output level in the short run.

average total cost (ATC)

the total cost per unit of output: ATC=TC/Q. (total cost divided by the quantity of output produced.

when long-run total cost rises more than in proportion to output, there are diseconomies of scale, and the LRATC curve slopes ______

upward