Studied by 253 peopleConstant returns to scale
output increase directly in proportion to an increase in all inputs (ex.
Fixed cost
cost that doesn’t change with amount of output produced
Long run
time period in which all inputs can be variable.
Rental rate
price of capital.
Production function
relation between the quantity of inputs a firm uses and the quantity of output it produces.
Capital
goods that are used to produce goods /services.
Marginal product
change in overall output when input changes.
Diminishing marginal returns
as input increases, the output of each input will be less than the previous input.
Profit
is the excess revenue that a business gets to keep.
Production function
relation between the quantity of inputs a firm uses and the quantity of output it produces
Fixed input
an input whose quantity doesnt change
Variable input
an input whose quantity can change
Long run
time period in which all inputs can be variable
Short run
time period in which at least 1 input is fixed
Marginal product
change in overall output when input changes
Diminishing marginal returns
as input increases, the output of each input will be less than the previous input
Output
quantity produced
Rental rate
price of capital
Capital
goods that are used to produce goods/services
Fixed cost
cost that doesnt change with amount of output produced (ex
Variable cost
cost that changes with amount of output produced
Marginal cost
cost difference of one additional unit of output (∆TC/∆Q)
Long run average total cost (LRATC)
same as short run ATC, but bigger
Economies of scale
LRATC declines as output increases
Diseconomies of scale
LRATC increaess as output increases
Constant returns to scale
output increase directly in proportion to an increase in all inputs (ex
Implicit cost
not an actual cost, a cost that you couldve been earning (ex
Marginal Revenue
additional revenue gained by producing one more unit
Exit rule
if P < ATC, exit the market
Shut down rule
a firm should not produce unless it can cover its variable costs
Note
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