econ ch 12
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A broad classification system for grouping goods and services, and the firms that produce them.
A group of firms producing similar products or using similar processes.
Shows the type and amount of output that results from a particular group of inputs when those inputs are combined in a certain way.
Efficient Method of Production
The least cost method of production.
The body of knowledge that exists about production and its processes.
New, technologically advanced machinery and production methods cause the disappearance of old machinery and methods.
A production time frame in which some factors of production are variable in amount and some are fixed.
Factors of productio that change in amount as the level of output changes.
Costs of using variable factors.
Factors of production that do not change in amount as the level of output changes.
Costs of using fixed factors.
A production time frame in which all factors of production are variable in amount.
Total Fixed Cost
The cost of all fixed factors; does not change as the level of output changes and must be paid even when output is zero.
Total Variable Cost
The cost of all variable factors of production; increases as the level of output increases but is zero when output is zero.
The cost of acquiring and using all factors of production; total fixed cost plus total variable cost.
Average Total Cost
The cost per unit of output produced; total cost divided by the number of units produced.
The change in total cost when one more unit of output is produced.
Laws of Diminishing Returns
As additional units of a variable factor are added to a fixed factor, beyond some point the additional product from each additional unit of variable factor decreases.
Long Run Total Cost, Average Total Cost and Marginal Cost
Total cost, per unit cost, and cost per additional unit of output, respectively; calculated for production when all inputs are regarded as variable.
Economies of Scale
Occur when the increasing size of production in the long run causes the per unit cost of production to fail.
Diseconomies of Scale
Occur when the increasing size of production in the long run causes the per unit cost of production to rise.
Constant Returns to Scale
Occur in the range of production levels in which long run average total cost is constant.
econ ch 12
econ ch 12