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Economics Midterm
Ch. 10
21
Economics
Undergraduate 3
10/24/2008
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Term
Technology
 Definition
The process a firm uses to turn inputs into outputs of goods and services.
Term
Technological change
 Definition
A change in the ability of a firm to produce a given level of output with a given quantity of inputs.
Term
Short run
 Definition
The period of time during which at least one of a firm's inputs is fixed.
Term
Long run
 Definition
The period in which a firm can vary all its inputs, adopt new technology, and increase the size of its physical plant.
Term
Total cost
 Definition
The cost of all the inputs a firm in production.
Term
Variable costs
 Definition
Costs that change as output changes.
Term
Fixed costs
 Definition
Costs that remain constant as output changes.
Term
Opportunity cost
 Definition
The highest-valued alternative that must be given up in order to engage in an activity.
Term
Explicit cost
 Definition
A cost that involves spending money.
Term
Implicit cost
 Definition
A nonmonetary opportunity cost.
Term
Marginal product of labor
 Definition
The additional output a firm produces as a result of hiring one more worker.
Term
Law of diminishing returns
 Definition
The principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline.
Term
Average product of labor
 Definition
The total output produced by a firm divided by the quantity of works.
Term
Marginal cost
 Definition
The change in a firm's total cost from producing one more unit of a good or service.
Term
Average fixed cost
 Definition
Fixed cost divided by the quantity of output produced.
Term
Average variable cost
 Definition
Variable cost divided by the quantity of output produced.
Term
Long-run average cost curve
 Definition
A curve showing the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed.
Term
Economics of scale
 Definition
The situation when a firm's long-run average costs fall as it increases output.
Term
Constants return to scale
 Definition
The situation when a firm's long-run average costs remain unchanged as it increases output.
Term
Minimum efficient scale
 Definition
The level of output a which all economies of scale are exhausted.
Term
Diseconomies of scale
 Definition
The situation when a firm's long run average costs rise as the firm increases output.
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