Chapter 7 Econ
Average Total Cost
Total cost divided by output, or ATC=TC/q or ATC=AFC+AVC
Average Variable Cost
Variable cost divided by output or AVC=VC/q
Implicit Cost
a firm's opportunity cost of using its own resources or those provided by its owners without a corresponding cash payment
Accounting Profit
a firm's total revenue minus its explicit cost
Explicit Cost
opportunity cost of resources employed by a firm that takes the form of cash payments
Diseconomies of Scale
Forces that may eventually increase a firms average cost as the scale of operation increases in the long run
Economies Of Scale
Forces that reduce a firm's average cost as the scale of operations increases in the long run
Isocost Line
Identifies all combinations of capital and labor the firm can hire for a given total cost
Properties of Isoquants
1) Isoquants further from the origin represent greater output rates 2) Isoquants have negative slopes because along a given isoquant, the quantity of labor employed inversely relates tot he quantity of capital employed 3) Isoquants do not intersect because each isoquant refers to a specific rate of output 4) Isoquants are usually convex to the origin
Constant Long Run Average Cost
A cost that occurs when, over some range of output, long run average cost neither increases nor decreases with changes in firm size
Long Run Average Cost Curve
A curve that indicates the lowest average cost of production at each rate of output when the size, or scale, of the firm varies; also called the panning curve
Isoquant Curve
A curve that shows all the technological efficient combinations of two resources, such as labor and capital
Economic profit
A firm's total revenue minus its explicit and implicit costs
Long Run
A period during which all resources under the firm's control are variable
Short Run
A period during which at least one of a firm's resources is fixed
Variable Cost
Any production cost that changes as the rate of output changes
Fixed Cost
Any production cost that is independent or the firm's rate of output
Variable Resources
Any resource that can be varied in the short run to increase or decrease production
Fixed Resource
Any resource that cannot be varied in the short run
Law of Diminishing Marginal Returns
As more of a variable resource is added to a given amount of a fixed resource, marginal product eventually declines and could become negative
Normal Profit
The accounting profit earned when all resources earn their opportunity cost
Marginal Product
The change in total product that occurs when the use of a particular resource increases by one unit, all other resources constant
Expansion Path
The line formed by connecting tangency points
Increasing Marginal Returns
The marginal product of a variable resource increases as each additional unit of that resource is employed.
Marginal Rate of Technical Substitution
The rate at which labor substitutes for capital without affecting output
Production Function
The relationship between the amount of resources employed and a firm's total product// Identifies the maximum quantities of a particular good or service that can be produced per time period with various combinations of resources, for a given level of technology
Total Cost
The sum of fixed cost and variable cost or TC=FC+VC
Total product
The total output produced by a firm