Micro 23

Front 1

Short Run

Back 1

A time period when at least one input, such as plant size, cannot be changed

Front 2

Plant Size

Back 2

The physical size of the factories that a firm owns and operates to produce its output

Front 3

Long Run

Back 3

The time period in which all factors of production can be varied

Front 4

A firm takes numerous inputs, combines them using a technological production process and ends up with output.
We classify production inputs in two broad categories _____ and ______

Back 4

labor and capital

Front 5

Output / time period =
or
Q=

Back 5

Some function of capital and labor inputs

Q = ƒ(K,L)

Q = output/time period
K = capital
L = labor

Front 6

Production

Back 6

Any activity that results in the conversion of resources into products that can be used in consumption

Front 7

Production Function

Back 7

The relationship between maximum physical output and the quantity of capital and labor used in the production process
The production function is a technological relationship between inputs and output.

Front 8

Average Physical Product

Back 8

Total product divided by the variable input

Front 9

Marginal Physical Product

Back 9

The physical output that is due to the addition of one more unit of a variable factor of production
The change in total product occurring when a variable input is increased and all other inputs are held constant
Also called marginal product

Front 10

Law of Diminishing Marginal Product

Back 10

The observation that after some point, successive equal-sized increases in a variable factor of production, such as labor, added to fixed factors of production, will result in smaller increases in output

Front 11

Point of saturation

Back 11

Given the amount of fixed inputs, there is no further positive use for more of the variable input

Front 12

Total Costs

Back 12

The sum of total fixed costs and total variable costs

Front 13

Fixed Costs

Back 13

Costs that do not vary with output and are fixed for a certain period of time, i.e. rent on a building

Front 14

Variable Costs

Back 14

Costs that vary with the rate of production, i.e. wages paid to workers and purchases of materials

Front 15

Total Costs (TC) =

Back 15

TFC+TVC

Front 16

Average Total Costs (ATC)=

Also called average per-unit total costs

Back 16

Total Costs (TC) / Output (Q)

Front 17

Average Variable Costs (AVC)=

Back 17

Total variable costs (TVC) / Output (Q)

Front 18

Average Fixed Costs (AFC)

Back 18

Total fixed costs (TFC) / Output (Q)

Front 19

Marginal Cost

Back 19

The change in total costs due to a one-unit change in production rate

Front 20

Marginal costs (MC) =

Back 20

Change in total cost / Change in output

Front 21

What do you think—is there a predictable relationship between the production function and AVC, ATC, and MC?

Back 21

As long as marginal physical product rises, marginal cost will fall, and when marginal physical product starts to fall (after reaching the point of diminishing marginal product), marginal cost will begin to rise.

Front 22

The relationship between average and marginal costs

Back 22

When marginal costs are less than average variable costs, the latter must fall.
When marginal costs are greater than average variable costs, the latter must rise.

Front 23

There is also a relationship between marginal costs and average total costs

Back 23

Average total cost is equal to total cost divided by the number of units produced.
Marginal cost is the change in total cost due to a one-unit change in the production rate.

Front 24

Firms’ short-run cost curves are a reflection of the ...

Back 24

law of diminishing marginal product

Front 25

Given any constant price of the variable input, ______ decline as long as the ________ of the variable resource is rising.

Back 25

marginal costs
marginal product

Front 26

At the point at which diminishing marginal product begins, _______ begin to rise as the ________ of the variable input begins to decline.

Back 26

marginal costs
marginal product

Front 27

If the wage rate is constant, then the labor cost associated with each additional unit of output will ____ as long as the marginal physical product (MPP) of labor increases

Back 27

decline

Front 28

Of course, the average total cost curve and average variable cost curve are also affected.

Back 28

They will have their familiar U shape in the short run.

Front 29

Planning Horizon

Back 29

The long run, during which all inputs are variable

Front 30

Long-Run Average Cost Curve

Back 30

The locus of points representing the minimum unit cost of producing any given rate of output, given current technology and resource prices

Front 31

Planning Curve

Back 31

The long-run average cost curve.

Front 32

Only at minimum long-run average cost curve is short-run average cost curve ____ to long-run average cost curve.

Back 32

tangent

Front 33

Why the Long-Run Average Cost Curve is U-Shaped

Back 33

Economies of scale
Constant returns to scale
Diseconomies of scale

Front 34

Economies of Scale

Back 34

Decreases in long-run average costs resulting from increases in output
These economies of scale do not persist indefinitely, however.
Once long-run average costs rise, the curve begins to slope upwards.

Front 35

Reasons for economies of scale

Back 35

Specialization

Dimensional factor

Improved productive equipment

Front 36

Specialization

Back 36

Division of tasks or operations

Front 37

Dimensional factor

Back 37

Large-scale firms often require proportionately less input per unit of output

Front 38

Improved productive equipment

Back 38

The larger the enterprise, the more the firm can take advantage of larger-volume types of machinery

Front 39

Explaining why a firm might experience diseconomies of scale

Back 39

Limits to the efficient functioning of management
Coordination and communication is more of a challenge as firm size increases

Front 40

Minimum Efficient Scale (MES)

Back 40

The lowest rate of output per unit time at which long-run average costs for a particular firm are at a minimum

Front 41

Small MES relative to industry demand

Back 41

There is room for many efficient firms.
High degree of competition

Front 42

Large MES relative to industry demand

Back 42

There is room for only a small number of efficient firms.
Small degree of competition

Front 43

The short run versus the long run from a firm’s perspective

Back 43

Short run—a period in which at least one input is fixed
Long run—a period in which all inputs are variable

Front 44

The law of diminishing marginal product

Back 44

As more units of a variable input are employed with a fixed input, marginal physical product eventually begins to decline.

Front 45

A firm’s short-run cost curves

Back 45

Fixed and average fixed cost
Variable and average variable cost
Total and average total cost
Marginal cost

Front 46

A firm’s long-run cost curve

Back 46

Planning horizon
All inputs are variable including plant size

Front 47

Economies and diseconomies of scale and a firm’s minimum efficient scale

Back 47

Along the down-ward sloping range of the firm’s long-run average cost curve, the firm experiences economies of scale.
Along the upward sloping portion, the firm encounters diseconomies of scale.