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