[ECON 11] Short Run Cost of Production

output markets; input markets

Firms look to _____ for the price of output and to _____ for the prices of capital and labor.

bear

In short run, all firms have cost that they must ____ regardless of their output.

fixed cost

Any cost that does not depend on the firms level of output. These costs are incurred even if the firm is producing nothing.

no

There are _____ fixed costs in the long run.

variable cost

A cost that depends on the level of production chosen.

total cost

Fixed costs plus variable costs.

Total Fixed Costs/Overhead

The total of all costs that do not change with output even if output is zero.

average fixed costs

Total fixed cost divided by the number of units of output; a per-unit measure of fixed costs.

spreading overhead

The process of dividing total fixed costs by more units of output. Average fixed cost declines as quantity rises.

total variable cost

The total of all costs that vary with output in the short run.

total variable cost curve

A graph that shows the relationship between total variable cost and the level of a firm’s output.

techniques of production that are available and the prices of the inputs required by each technology

At any given point of output, TVC depends on:

marginal cost

The increase in total cost that results from producing 1+ more unit of output. It reflects the changes in variable costs.

increase

Marginal costs ultimately _____ with output in the short run.

average variable cost

Total variable cost divided by the number of units of output.

perfect competition

An industry structure in which there are many firms, each small relative to the industry, producing virtually identical products and in which no firm is large enough to have any control over prices. New competitors can freely enter and exit the market.

homogenous products

Undifferentiated products; products that are identical to, or indistinguishable from, one another.

total revenue

The total amount that a firm takes in from the sale of its product: the price per unit times the quantity of output the firm decides to produce.

marginal revenue

The additional revenue that a firm takes in when it increases output by one additional unit. In perfect competition.

Shutdown Rule

The rule that comes into effect when the revenue received from the sale of the goods or services produced cannot even cover the variable costs of production.