MIcroeconomics - Chapter 7 - Business and the Cost of Production
Increasing Returns - Definition and Graph - Short Run
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Short Run Cost Model - For a Firm
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Accounting Profit
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Diminishing Returns - Definition and Graph - Short Run
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Diseconomies of Scale - Definition and graph in the Long Run Average Cost Curve
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ECONOMIC PROFIT or LOSS - Calculation
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Economies of Scale - Definition and graph in the Long Run Average Cost Curve
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Long-Run Cost model for a firm
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Minimum Efficient Scale - Understand how minimum efficient scale determines the structure of an industry.
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Negative Returns - Definition and graph in the Long Run Average Cost Curve
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Short-Run Cost Model for a Firm
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Increasing Returns
A level of production in which the marginal product of labor increases as the number of workers increases.
Average Product
Average amount produced by each unit of a variable factor of production Total output divided by total units of the variable factor of production Output per worker
Explicit Cost
EXPLICIT Costs - These are tangible cost where a money payment is made; expenses such as interest payments are examples of explicit cost. Income spent paying interest on credit cannot be spent on other goods or services.
Diseconomics of Scale
Forces that may eventually increase a firm's average cost as the scale of operation increases in the long run.
IMPLICIT Cost
IMPLICIT Cost - are intangible costs incurred where we make a choice while no money payment is made. If you choose to withdraw savings from a bank to invest in a small business, you forgo the opportunity to earn interest.
Normal Profit
Normal profit is a cost to the enterprise Normal Profit is the value of resources supplied by the entrepreneur The entrepreneur has an exprection for a minimum amount of comprensation for risk taking. This normal profit is required in order to attract and maintain entrepreneurship.
Economics of Scale - Determinants
Plant Size Labor Specialization Mangerial
Economic Profit
TRUE ECONOMIC COST OF PRODUCTION Economic Profit is a pure profit Total Revenue less all oppurtunity Costs equals ECONOMIC PROFIT OR ECONOMIC ( LOSS )
Long Run
The long run is a period of time long enough for a firm to change the quantities of all resources employed, including the plant size. Long run costs are all costs, including the cost of varying the size of the production plant.
Minimum Efficient Scale
The lowest rate of output at which a firm takes full advantage of economies of scale
Short-Run
The short run is the time period that is too brief for a firm to alter its plant capacity. The plant size is fixed in the short run. Short run costs, then, are the wages, raw materials, etc., used for production in a fixed plant.
Total Cost
Total cost is the sum of total fixed and total variable costs at each level of output
Total Fixed Cost
Total fixed costs are those costs whose total does not vary with changes in short run output.
Total Product
Total output produced by the firm
Total Variable Cost
Total variable costs are those costs that change with the level of output. They include payment for materials, fuel, power, transportation services, most labor, and similar costs.
Diminishing Returns
a level of production in which the marginal product of labor decreases as the number of workers increases
Increasing Returns
a level of production in which the marginal product of labor increases as the number of workers increases
Average Fixed Cost
fixed cost divided by the quantity of output produced
Negative Returns
level of production where the total output decreases and the marginal product of labor decreases as the number of workers increases
Marginal Cost
the additional cost to a firm of producing one more unit of a good or service
Marginal Product
the increase in output that arises from an additional unit of input
Marginal Cost
the increase or decrease in costs as a result of one more or one less unit of output
Long-run average cost
the lowest cost per unit that can be achieved for a given level of output when all factors of production, all costs, and the size of the firm are variable, but technology is constant
Law of Diminishing Returns
the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline
Economies of Scale
the property whereby long-run average total cost falls as the quantity of output increases
Diseconomies of Scale
the property whereby long-run average total cost rises as the quantity of output increases
Constant Returns to Scale
the property whereby long-run average total cost stays the same as the quantity of output changes.
Average Total Cost
total cost divided by the quantity of output
Average Variable Cost
variable cost divided by the quantity of output