Output and Costs

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Fixed input

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any resource for which the quantity cannot change during the period of time under consideration

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Fixed input examples:

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management organization structure, level of technology, buildings and large equipment

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Variable input

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any resource for which the quantity can change during the period of time under consideration

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Short run

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a period of time where there is at least one fixed input

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Long run

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a period of time long enough so that all inputs are variable

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Production function

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the relationship between the maximum amounts of output that a firm can produce and various quantities of inputs

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Marginal Product

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the change in total output produced by adding one unit of a variable input, with all other inputs used being held constant

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Law of diminishing returns

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the principle that beyond some point the marginal product decreases as additional units of a variable factor are added to a fixed factor

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Average Product

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of a variable input is the total output produce with a particular quantity of the variable input divided by the quantity of the variable input

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Marginal Product of X

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the change in the total output divided by the change in the quantity of variable input X. This is a midpoint estimate of MPx

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Average Product of X

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equals total output produced by the quantity of X

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Average Product Curve

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shows the average product that is generated by input at each level of input

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Total Fixed Cost

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Costs that do not vary as output varies and that must be paid even if output is zero

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Total Variable Cost

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Costs that are zero when output is zero and vary as output varies

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Total Cost

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the sum of total fixed cost and total variable costs at each level of output

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Averaged Fixed Cost

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Total fixed cost divided by the quantity of output produced

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Average Variable Cost

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the total variable cost divided by the quantity of output

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Average Total Cost

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the total cost divided by the quantity of output

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Marginal Cost

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the change, denoted as Δ, in total cost when one additional unit of output is produced

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Shifts in the Cost Curves are due to

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changes in technology and resource prices due to taxes and government regulation

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If the resource prices fall, cost curves will

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shift downward

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Higher taxes or more regulation will shit the cost curves

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upward

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An increase in technology that allows more output to be produced from the same resources shifts the cost curves

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downward

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Long run marginal cost curve

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the additional cost of producing an additional unit of output when all inputs, including plant size, can be varied

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Long-run average total cost

answer

the lowest per unit cost of producing any level of output when the usage of all inputs can be varied

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Economies of Scale

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a situation in which the long run average cost curve declines as the firm increases output (greater specialization of labor and capital)

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Diseconomies of Scale

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a situation in which the long run average cost curve rises as the firm increases output (difficulty managing large quantity)

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The minimum efficient scale

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the smallest quantity of output at which the long-run average cost curve reaches its lowest level

1 of 28

question

Fixed input

answer

any resource for which the quantity cannot change during the period of time under consideration

question

Fixed input examples:

answer

management organization structure, level of technology, buildings and large equipment

question

Variable input

answer

any resource for which the quantity can change during the period of time under consideration

question

Short run

answer

a period of time where there is at least one fixed input

question

Long run

answer

a period of time long enough so that all inputs are variable

question

Production function

answer

the relationship between the maximum amounts of output that a firm can produce and various quantities of inputs

question

Marginal Product

answer

the change in total output produced by adding one unit of a variable input, with all other inputs used being held constant

question

Law of diminishing returns

answer

the principle that beyond some point the marginal product decreases as additional units of a variable factor are added to a fixed factor

question

Average Product

answer

of a variable input is the total output produce with a particular quantity of the variable input divided by the quantity of the variable input

question

Marginal Product of X

answer

the change in the total output divided by the change in the quantity of variable input X. This is a midpoint estimate of MPx

question

Average Product of X

answer

equals total output produced by the quantity of X

question

Average Product Curve

answer

shows the average product that is generated by input at each level of input

question

Total Fixed Cost

answer

Costs that do not vary as output varies and that must be paid even if output is zero

question

Total Variable Cost

answer

Costs that are zero when output is zero and vary as output varies

question

Total Cost

answer

the sum of total fixed cost and total variable costs at each level of output

question

Averaged Fixed Cost

answer

Total fixed cost divided by the quantity of output produced

question

Average Variable Cost

answer

the total variable cost divided by the quantity of output

question

Average Total Cost

answer

the total cost divided by the quantity of output

question

Marginal Cost

answer

the change, denoted as Δ, in total cost when one additional unit of output is produced

question

Shifts in the Cost Curves are due to

answer

changes in technology and resource prices due to taxes and government regulation

question

If the resource prices fall, cost curves will

answer

shift downward

question

Higher taxes or more regulation will shit the cost curves

answer

upward

question

An increase in technology that allows more output to be produced from the same resources shifts the cost curves

answer

downward

question

Long run marginal cost curve

answer

the additional cost of producing an additional unit of output when all inputs, including plant size, can be varied

question

Long-run average total cost

answer

the lowest per unit cost of producing any level of output when the usage of all inputs can be varied

question

Economies of Scale

answer

a situation in which the long run average cost curve declines as the firm increases output (greater specialization of labor and capital)

question

Diseconomies of Scale

answer

a situation in which the long run average cost curve rises as the firm increases output (difficulty managing large quantity)

question

The minimum efficient scale

answer

the smallest quantity of output at which the long-run average cost curve reaches its lowest level

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Output and Costs

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