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Micro Ch. 8
| Term | Definition |
|---|---|
| Fixed Cost | Cost to the firm that does not vary with the quantity of goods produced. The cost is incurred even when the firm does not produce. |
| Variable Cost | Cost that varies with the quantity of goods produced. Variable costs include such items as wages and raw materials. |
| Labor productivity | The output per laborer per unit of time. |
| Total Cost (TC) | Cost to the firm that includes both fixed and variable costs. |
| Average Total Cost (ATC) | Total cost divided by the quantity of goods produced. ATC declines, reaches a minimum, then increases as more of a good is produced. |
| Average Fixed Cost (AFC) | Total fixed cost divided by the quantity of goods produced. AFC steadily declines as more of a good is produced. |
| Average Variable Cost (AVC) | Total variable cost divided by the quantity of goods produced. AVC declines, reaches a minimum, then increases as more of a good is produced. |
| Marginal Cost (MC) | The change in total cost generated by a change in the quantity of a good produced. Typically, MC is used to measure the additional cost incurred by adding one more unit of output to production. |
| Economies of Scale | Decreases in the firm's average total cost brought about by increased specialization and efficiencies in production realized through increases in the scale of the firm's operations. |
| Constant Returns to Scale | Costs per unit of production are the same for any level of production. Changes in plant size do not affect the firm's average total cost. |
| Diseconomies of Scale | Increases in the firm's average total cost brought about by the disadvantages associated with bureaucracy and the inefficiencies that eventually emerge with increases in the firm's operations. |
| Short Run | The time interval during which producers are able to change the quantity of some but not all the resources they use to produce goods and services. |
| Long Run | The time interval during which producers are able to change the quantity of all the resources they use to produce goods and services. In the long run, all costs are variable. |
| Rightsizing | Implementing a firm's decision to adjust its plant size to produce in the most efficient manner its current volume of output |
| Downsizing | Implementing a firm;s decision to decrease its plant size to produce in the most efficient manner its current volume of output. |
| Outsourcing | The practice of a firm contracting out or delegating part or parts of its production process to external sources, often located in foreign countries. |
Created by:
lilready44
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