Chapter 19 Cost And Output

Front 1

economic profit

Back 1

payment received in excess of what is necessary to get something done

Front 2

fixed costs

Back 2

cost that neither increase nor decrease as output changes.

Front 3

law of diminishing marginal return

Back 3

after some point, as a firm adds more and more units of an input, the unputs marginal physical product diminishes ( it adds less to total output than before)

Front 4

marginal cost

Back 4

addition to total cost due to increasing output by one unit.

Front 5

marginal physical product (MPP)

Back 5

addition to total output due to increasing an input ( such as labor) by one unit

Front 6

the short-run

Back 6

a firm can change (either increasing or decresing some but not all of its inputs in order to produce more or less output.

hiring more labor

buying more materials

leaves plant and size alone

Front 7

the long run

Back 7

when the firm can change all of its inputs, including its plant size and equipment

Front 8

marginal cost

Back 8

the increase in total cost, by increasing its output by one unit.

Front 9

marginal cost changes

Back 9

because marginal MPP changes

Front 10

MPP is going up

Back 10

so MC goes down as output is expanded

Front 11

decreasing marginal returns, MPP is going down

Back 11

so Marginal Cost goes up once decreasing return have set it

Front 12

first output will have marginal high marginal cost

Back 12

however, the succesive units of output will take fewer units of labor to produce and thus marginal cost will fall

Front 13

marginal cost are the most important cost in making output decisions

Back 13

marginal cost is the increase in total cost needed to produce another unit of output

Front 14

the section of falling Marginal Cost reflects

Back 14

increasing Marginal Physical Product

Front 15

the section rising Margical Cost

Back 15

reflects decreasing MPP

Front 16

total cost consist of

Back 16

total fixed cost - the cost of inputs the firm cannot change in the short run (plant equip)

total variable cost- the total cost of all the inputs (such as workers and material) the firm does change in the short tun to produce more)

Front 17

total fix cost stays the same

Back 17

when output changes

Front 18

it equals the firms total cost

Back 18

when output is zero (and thus when TVC=0)

Front 19

since TFC stays the same as output goes up

Back 19

both TVC and TC go up by Marginal Cost when one more unit of output is produce

Front 20

tvc is the sum of

Back 20

marginal cost

Front 21

as Marginal Cost is falling in the section of increasing marginal returns

Back 21

Total Variable Cost increases, but each increase becomes smaller as Marginal Cost becomes smaller.

Front 22

total cost is the sum of total fixed cost and total variable cost

Back 22

TC=tfc and TVC

Front 23

total variable cost

Back 23

at any level of output is the sum of all marginal cost up to that level of output

Front 24

total cost and total variable cost go up

Back 24

by marginal cost

Front 25

average cost

Back 25

is the cost per unit or total cost divided by total output

Front 26

how average and marginal cost are related

Back 26

MC

IF MC = ATC, ATC stays the same

if MC>ATC, ATC goes up

Front 27

avc depends on how it compares to MC

Back 27

IF MC < AVC; AVC goes Down

IF MC= AVC ; AVC stays the same

IF MC > AVC; AVC goes up

Front 28

the average cost curve moved towards the marginal cost curve as output increases

Back 28

in general

Front 29

when output expands, as long as marginal cost is smaller than average cost, AVC falls.

MC equals AVC at the minimum AVC.

then MC exceeds AVC and AVC rises

Back 29

remember

Front 30

average cost moves towards marginal cost

Back 30

average cost

Front 31

average fix cost becomes smaller as

Back 31

output expands

Front 32

at the Minimun average total cost

Back 32

MC = ATC at the minimun average variable cost, MC= AVC

Front 33

in the longrun, all inputs can be increased so that the law of diminishing marginal returns need not to apply

Back 33

LONG run

Front 34

the long-run average cost curve shows the lowest ATC at which each level of output can be produced

Back 34

long run

Front 35

economics of scale

Back 35

when an increase in all inputs result in a greater than proportionate increase in output, the firm experiences economies of scale

LRATC falls

better utilization of equioment and specialization

Front 36

Constant return scale

Back 36

when an increase in inputs increases output proportionately the firm experiances constant return to scale

LRATC remains the same

Front 37

decreasing return to scale

Back 37

when an increase in inputs increases output less than Proportionately, the firm experiences decreasing returns to scale

LRATC rises

Front 38

each firm has 2 types of cost

Back 38

explicit costs- it pays for inputs, these are the cost recorded by accountants

implicit cost- owners times and investment in the firm.

Front 39

accounting profits ignores implicit cost

Back 39

so it overstate the firms true economic profit

Front 40

economic profit

Back 40

is the excess of revenue over the firms costs when cost included explicit ad implicit cost