Microeconomics Chapter 7

Very Long Run

Period of time that is long enough for the technological possibilities available to a firm to change

Accounting profits

Revenues - Explicit Costs

Marginal Product

The change in total output that results from using one more unit of a variable factor

Intermediate Products

All outputs that are used by producers in a further stage of production

Variable factor

An input whose quantity can be changed over the time period under consideration

Fixed factor

An input whose quantity cannot be changed in the short run

Production Function

A functional relation showing the max output that can be produced by any given combination of inputs

Total Fixed Cost (or overhead)

Cost of fixed factors. Doesn't vary with level of output

Total Variable Cost

Cost of variable factors. Varies directly with the level of output

Economic Profit

Difference between revenues received from sale of output and the opportunity cost of the inputs used to make the output

Law of Diminishing Returns

Hypothesis that if increasing quantities of a variable factor are applied to a given quantity of fixed factors, the marginal product of the variable factor will eventually decrease

Marginal Cost

Increase in total cost resulting from increasing output by one unit

Average-Marginal Relationship

Increasing quantities of a variable factor are applied to a given quantity of fixed factors, the average product of the variable factor will eventually decrease. See MP and AP curves

Long Run

Period of time in which all inputs may be varied, but existing technology of production cannot be changed

Short Run

Period of time in which the quantity of some inputs cannot be increased beyond the fixed amount that is available (time period varies by industry, length of time over which some firm's factors of production are fixed)

Total Product

Total amount produced by a firm during some time period

Average Total Cost

Total cost of producing a given output divided by the number of units of output.

Total Cost

Total cost of producing any given level of output; can be divided into total fixed cost and total variable cost

Average Fixed Cost

Total fixed costs divided by the number of units of output

Average Product

Total product divided by the number of units of the variable factor used in its production

Average Variable Cost

Total variable costs divided by the number of units of output