Ch. 12 Key Terms

constant returns to scale

where long-run average total costs do not change with an increase in output

depreciation

a measure of the decline in value of an asset that occurs over time

diseconomies of scale

when long-run average total costs increase as output increases

economically efficient

the method that produces a given level of output at the lowest possible cost

economies of scale

when long-run average total costs decrease as output increases

economies of scope

when the costs of producing products are interdependent so that it’s less costly for a firm to produce one good when it’s already producing another

entrepreneur

an individual who sees an opportunity to sell an item at a price higher than the average cost of producing it

indivisible setup cost

the cost of an indivisible input for which a certain minimum amount of production must be undertaken before the input becomes economically feasible to use

learning by doing

as we do something, we learn what works and what doesn’t, and over time we become more proficient at it

minimum efficient level of production

the amount of production that spreads out setup costs sufficiently for a firm to undertake production profitably

monitoring costs

the costs incurred by the organizer of production in seeing to it that the employees do what they’re supposed to do

team spirit

the feelings of friendship and being part of a team that bring out people’s best efforts

technical efficiency

a production process uses as few inputs possible to produce a given level of output

technological change

an increase in the range of production techniques that leads to more efficient ways of producing goods as well as the production of new and better goods