Microeconomics: Chapter 14
Marginal product
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Average Product
The average product of a factor of production. It equals total product divided by the quantity of the factor employed.
Total Cost (TC)
The cost of all the productive resources that a firm uses. TC=TFC+TVC (The market value of the inputs a firm uses in production)
Total Fixed Cost (TFC)
The cost of the firm's fixed inputs.
Marginal Product
The increase on total product results from a one-unit increase in the variable input, with all other inputs remaining the same. It is calculated as the increase in total product divided by the increase in variable input employed, when the quantities of all other inputs remain the same. the increase in output that arises from an additional unit of input
Total Product
The maximum output that a given quantity of labor can produce.
Law of Diminishing Returns
As a firm uses more of a variable factor of production with given quantity of the fixed factor of production, the marginal product of the variable factor of production eventually diminishes.
Constant Returns of Scale
Features of a firm's technology that lead to constant long-run average cost as output increases. When constant returns to scale are present, the Long Run Average Cost (LRAC) curve slopes horizontal.
Economies of Scale
Features of a firm's technology that make average total cost fall as output increases—the Long-Run Average Cost (LRAC) curve slopes downward.
Diseconomies of Scale
Features of a firm's technology that make average total cost rise as output increases—the Long Run Average Cost (LRAC) curve slopes upward.
Explicit costs
Input costs that require an outlay of money by the firm
Marginal Cost (MC)
The "opportunity cost" of producing one more unit of a good or service. It is the best alternative forgone. It is calculated as the increase in the total cost divided by the increase in output. (the increase in total cost that arises from an extra unit of production)
Minimum Efficient Scale
The "smallest" quantity of output at which the long-run average cost reaches its lowest level.
Total revenue
The amount a firm receives for the sale of its output
Long-run Average Cost Curve
The relationship between the lowest attainable average total cost and output when the firm can change both the plant it uses and the quantity of labor it employs.
Diminishing Marginal Returns
The tendency for the marginal product of an additional unit of a factor of production to be less than the marginal product of the previous unit of the factor.
Long Run
The time frame in which the quantities of "all" factors of production can be varied.
Short Run
The time frame in which the quantity of at least one factor of production is fixed and the quantities of the other factors can be varied. The fixed factors is usually capital—that is, the firm uses a given plant.
Total Variable Cost (TVC)
The total cost of all the firm's variable inputs.
Average Total Cost (ATC)
Total cost per unit of output. (total cost divided by the quantity of output( ATC=AFC+AVC
Average Fixed Cost (AFC)
Total fixed cost per unit of output. (fixed cost divided by the quantity of output)
Average Variable Cost (AVC)
Total variable cost per unit of output.
Sunk cost
a cost that has already been committed and cannot be recovered
Competitive market
a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker
Fixed costs
costs that do not vary with the quantity of output produced
Variable costs
costs that vary with the quantity of output produced
Implicit costs
input costs that do not require an outlay of money by the firm
Marginal revenue
the change in total revenue from an additional unit sold
Diminishing marginal product
the property whereby the marginal product of an input declines as the quantity of the input increase
Average revenue
total revenue divided by the quantity sold
Profit
total revenue minus total cost
Economic profit
total revenue minus total cost, including both explicit and implicit costs
Average variable cost
variable cost divided by the quantity of output
