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Sunk cost
Past expenditure on a plant that has no resale value
relationship between output and the quantity of labor employed can be described by using 3 diff. concepts
1) Total product
2) Marginal product
3) Average product
These concepts can be illustrated by product schedules or product curves
1) Total product
2) Marginal product
3) Average product
1) the maximum output that a given quantity of labor can produce
2) the increase in total product that results from a one-unit increase in the quantity of labor employed with all other inputs remaining the same
3) total product divided by the quantity of labor employed - tells how productive workers are on the average
The law of diminishing returns
As a firm uses more of a variable factor of production, with a given quantity of the fixed factor of production, the marginal product of the variable factor eventually diminishes.
Relationship between output and cost can be described using three cost concepts
1) Total cost
2) Marginal cost - an increase in total cost from a one-unit increase in output (increase in total cost/increase in output)
3) Average cost - U shape comes from spreading total fixed cost over a larger output and eventually diminishing returns
The position of a firm's short-run cost curves depends on two factors:
1) technology
2) price of factors of production
marginal product of capital
change in the total product divided by the change in capital when the quantity of labor is constant
long-run average cost curve
relationship between the lowest attainable average total cost and output when both the plant size and labor are varied.
tells firm plant size and quantity of labor to use at each output to minimize cost
diseconomies of scale
features of a firm's technology that lead to rising long-run average cost as output increases
constant returns to scale
features of a firm's technoogy that lead to constant long-run average cost as output increases. when constant returns to scale are present the LRAC curve is horizontal.
minimum efficient scale
the smallest quantity of output at which long-run average cost reaches its lowest level