20 terms

micro econ chapter 11


Terms in this set (...)

short run
time frame in which the quantity of at least one factor of production is fixed
-capital, land, entrepreneurship for most firms
(of a firm) the fixed factors of production
long run
a time frame in which all factors of production can be varied ; a time frame in which the firm can change its plant
-not easy to reverse decisions
sunk cost
past expenditure on a plant with no resale value
total product (TP)
the maximum output that a given quantity of labor can produce
marginal product
(of labor) the increase in total product that results from a one-unit increase in the quantity of labor employed, with all other inputs remaining the same (difference in TP)
average product
total product divided by the quantity of labor employed
-shows how productive workers are on average
diminishing marginal returns
occurs when the marginal product of an additional worker is less than the marginal product of the previous worker
-more and more workers are using the same space and the same capital
law of diminishing return
as a firm a firm uses more of a variable factor of production with a given quantity of the fixed factor of production, the marginal product of the variable factor eventually diminishes
total cost
the cost of all the factors of production of a firm
total fixed cost
the cost of the firm's fixed factors
-the same at all outputs
total variable cost
the cost of the firm's variable factors
marginal cost
the increase in total cost that results in one-unit increase in output
=change in TC/Q=change in VC/Q
average fixed cost
total fixed cost per unit output
average variable cost
total variable cost per unit output
average total cost
total cost per unit 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
-a planning curve
economies of scale
features of a firm's technology that make average total cost fall as output increases
-LRAC slopes downward
diseconomies of scale
features of a firm's technology that make average cost rise as output increases
-LRAC slopes upward
constant returns to scale
features of a firm's technology that keep average total cost constant as output increases
-LRAC is horizontal