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
