Term
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Definition
| Curve showing all possible combinations of inputs that yield the same output. |
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Term
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Definition
| Graph combining a number of isoquants, used to describe a production function. |
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Term
| Marginal Rate of Technical Substitution (MRTS) |
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Definition
| Amount by which the quantity of one input can be reduced when one extra unit of another input is used, so that output remains constant. |
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Term
| Production Function - Special Case - Perfect Substitutes |
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Definition
| When the isoquants are straight lines, the MRTS is constant. Thus the rate at which capital and labor can be substituted for each other is the same no matter what level of inputs is being used. |
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Term
| Production Function - Special Case - Fixed-Proportions |
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Definition
| When the isoquants are L-shaped, only one combination of labor and capital can be used to produce a given output. |
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Term
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Definition
| Rate at which output increases as inputs are increased proportionately. |
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Term
| Increasing returns to scale |
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Definition
| Situation in which output more than doubles when all inputs are doubled. |
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Term
| Constant returns to scale |
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Definition
| Situation in which output doubles when all inputs are doubled. |
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Term
| Decreasing returns to scale |
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Definition
| Situation in which output less than doubles when all inputs are doubled. |
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Term
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Definition
| Actual expenses plus depreciation charges for capital equipment. |
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Term
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Definition
| Cost to a firm of utilizing economic resources in production, including opportunity cost. (Both Explicit and Implicit) |
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Term
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Definition
| Expenditure that has been made and cannot be recovered. Because it cannot be recovered it should not influence the firms decisions. No alternative use = No opportunity cost. (Ex. R & D) |
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Term
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Definition
| Total economic cost of production, consisting of fixed and variable costs. (TFC + TVC) |
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Term
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Definition
| Cost that does not vary with the level of output and that can be eliminated only be shutting down. |
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Term
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Definition
| Cost that varies as output varies. |
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Term
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Definition
| Policy of treating a one-time expenditure as an annual cost spread out over some number of years. |
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Term
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Definition
| Increase in cost resulting from the production of one extra unit of output. |
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Term
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Definition
| Firm's total cost divided by its lever of output. (TC / Q) |
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Term
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Definition
| Fixed cost divided by the level of output. (TFC / Q) |
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Term
| Average Variable Cost (AVC) |
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Definition
| Variable cost divided by the level of output. (TVC / Q) |
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Term
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Definition
| Line showing all possible combinations of labor and capital that can be purchased for a given total cost. |
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Term
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Definition
| Curve passing through points of tangency between a firm's isocost lines and its isoquants. |
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Term
| Production with two variables |
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Definition
| Producing the same output using labor and capital as variables. |
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Term
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Definition
| Does not require actual money payment, usually cause the resources are owned by the firms themselves. |
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Term
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Definition
| Requires actual money payment, usually cause resrouces are owned by outsiders. |
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Term
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Definition
| TR - (explicit + depreciation) = Profit |
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Term
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Definition
| TR - (explicit + implicit + depreciation) = Profit |
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