ECON Final Cost of Production

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Terms in this set (37)
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The Long Run:
A period of time sufficient to alter the quantities of all inputs into the production process. All inputs are variable.
The Short Run:
A period of time which is not sufficient to alter all inputs. At least one input is fixed.
Total Product (TP)
Maximum total output obtainable from a set of inputs.
Average Product (AP)
Output per unit of input.
Marginal Physical Product (MPP)
The extra output produced by the additional unit of input, ceteris paribus.
The Law of Diminishing Returns:
As additional units of a variable input are added to fixed quantities of other inputs, eventually the increment to output will decline.
The _______________________ to output will decline, not output itself.
Increment
Economic Cost =
Explicit Costs + Implicit Costs
Fixed Cost (FC)
The cost of fixed inputs
Variable Cost (VC)The cost of the variable inputsTotal Cost (TC)The sum of the costs of all inputs used in production.Average Fixed Cost (AFC)Fixed cost per unit of outputAverage Variable Cost (AVC)Variable cost per unit of outputAverage Total Cost (ATC)Total cost per unit of outputMarginal Cost (MC)The cost of an additional unit of outputAn average variable cost can only _____________________ if the corresponding marginal curve is below it and can only _____________________ if the corresponding marginal curve is above it. Hence average variable cost and marginal curves must always intersect at an extreme point on the average variable cost curve.decline; increaseWhen LRAC decreases as output increases _______________________ _______ _________________ are present.Economies of ScaleCommon sources of scale economies:- Input specialization - More efficient capital equipment - Utilization of by-products - Quantity discounts on inputs - Growth of complementary facilitiesWhen LRAC increases as output increases, __________________________ ________ ____________________ are present.Diseconomies of scaleCommon sources of scale diseconomies:- Information and coordination problems. - Labor unions. - Government regulations that exempt small firms.Minimum Efficient Scale (MES)The smallest output that allows the firm to exploit all of its economies of scale.In the short run:At least one of the firm's inputs is fixed.The addition to total output resulting from the employement of one more worker, ceteris paribus, is the:marginal physical product of laborFor the firm with a single variable input, when marginal physical product is rising:marginal cost is falling.The "Law of Diminishing Returns" dictates that:marginal product must eventually fallThe addition to total variable cost when another unit of output is produced is:marginal costThe cost that does not vary with the quantity of output that a firm produces is:fixed costIf average total cost is rising, then:average total cost must be less than marginal costEconomies of scale might result from:- Quantity discounts for inputs - Utilization of by-products - Access to more efficient capital equipment - Growth of auxiliary facilitiesMarginal Physical Product initially increases due to:input specializationIn the short run, if the firm produces no output then:TC=FCThe addition to total cost when one more unit of output is produced is:marginal costWhich short run cost curve is horizontal?FCWhich cost always decreases as output increases?AFCA typical MC curve is:U-shapedEconomies of scale are present if an increase in the firm's output causes:long-run average cost to decrease