Inputs, Production, and Costs in the Long Run

These flashcards cover the key terms and concepts related to the inputs, production, and costs in the long run from the lecture notes.

Firm

An organization that uses resources to produce goods and services to sell.

Marginal Analysis

A comparison of additional benefits to additional costs for decision-making.

Short Run

A period in which at least one input or factor of production is fixed.

Long Run

A time period long enough for a firm to change all of its inputs.

Isocost Line

A line that shows various combinations of inputs that cost the same total amount.

Isoquant Curve

A curve that shows all combinations of inputs that will produce the same amount of output.

Marginal Product of Labor (MPL)

The change in total output resulting from hiring one more unit of labor.

Marginal Product of Capital (MPK)

The change in total output resulting from hiring one more unit of capital.

Diminishing Marginal Returns

The principle stating that adding more of one input while keeping others constant will eventually yield lower per-unit returns.

Economies of Scale

When average costs fall as a firm grows in size due to factors like specialization and larger volume equipment.

Diseconomies of Scale

When average costs increase as a firm grows in size due to complexities in management and coordination.

Cost Minimization

The process of selecting the combination of inputs that results in the lowest possible total cost for production.

Long Run Average Cost Curve (LRAC)

A curve that represents the lowest average cost of production for all output levels in the long run.

Constants Returns to Scale

A situation where the long-run average total cost remains constant as output increases.

Total Costs

The total expense incurred in the production of a good or service.

Average Costs

Total costs divided by the number of goods produced; reflects the cost per unit.