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Econ Exam 2 Study Guide
Terms in this set (20)
A fixed input is an input whose quantity is fixed for a period of time and cannot be varied.
A variable input is an input whose quantity the firm can vary at any time.
The long run is the time period in which all inputs can be varied.
The short run is the time period in which at least one input is fixed.
The marginal product of an input is the additional quantity of output that is produced by using one more unit of that input.
Diminishing returns to an input
There are diminishing returns to an input when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input.
A fixed cost is a cost that does not depend on the quantity of output produced. It is the cost of the fixed input.
A variable cost is a cost that depends on the quantity of output produced. It is the cost of the variable input.
The total cost of producing a given quantity of output is the sum of the fixed cost and the variable cost of producing that quantity of output.
total cost curve
The total cost curve shows how total cost depends on the quantity of output.
cost of producing 1 more item
average total cost
Average total cost, often referred to simply as average cost, is total cost divided by quantity of output produced.
U-shaped average total cost curve
A U-shaped average total cost curve falls at low levels of output, then rises at higher levels.
Average fixed cost
Average variable cost
The minimum-cost output is the quantity of output at which average total cost is lowest—the bottom of the U-shaped average total cost curve.
long-run average total cost curve
The long-run average total cost curve shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output.
increasing returns to scale
There are increasing returns to scale when long-run average total cost declines as output increases.
decreasing returns to scale
There are decreasing returns to scale when long-run average total cost increases as output increases.
constant returns to scale
There are constant returns to scale when long-run average total cost is constant as output increases.
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