Ch34 Short and Long-run production, profit, revenue and cost

Front

Law of Diminishing Returns

Back

As more units of a variable input are added to fixed inputs, the marginal product of the variable input initially increases, but eventually begins to decrease.

Front

Fixed Costs

Back

Costs that are independent of output in the short run.

Front

Variable Costs

Back

Costs that vary directly with output in the short run. All costs are variable in the long run.

Front

Increasing Returns to Scale

Back

Output increases at a proportionately faster rate than the increase in factor inputs.

Front

Decreasing Returns to Scale

Back

Factor inputs increase at a faster rate than the increase in output.

Front

Internal Economies of Scale

Back

Benefits a firm gains from falling long-run average costs as the scale of output increases.

Front

External Economies of Scale

Back

Cost savings that all firms receive as the scale of the industry increases.

Front

Normal Profit

Back

A cost of production that is just sufficient to keep a firm operating in a particular industry.

Front

Supernormal Profit

Back

Profit earned above normal profit.

Front

Subnormal Profit

Back

Profit earned below normal profit.