ECO206 Chapter 12 - Production and Cost Analysis II

technical efficiency

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

economically efficient production method

a production 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

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

minimum efficient level of production

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

diseconomies of scale

when long-run average total costs increase as output increases

monitoring costs

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

constant returns to scale

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

envelope relationship

the relationship between long-run and short-run average total costs

economies of scope

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