01
Front
How do the short run and long run differ?
Back
In the short run, at least one input is fixed; in the long run, all inputs can vary.
Free Online Flashcard Deck
4 Cost Curves and Scale Free Online FlashCards
Study 4 Cost Curves and Scale with 12 free online flashcards. Review key terms, definitions, and concepts with this interactive flashcard deck.
12 cards
02
Front
What makes up a firm’s short-run total cost?
Back
Total cost is fixed cost plus variable cost: TC(Q)=FC+VC(Q).
03
Front
How are ATC, AVC, and AFC related?
Back
Average total cost equals average fixed cost plus average variable cost: ATC=AFC+AVC. The gap between ATC and AVC is AFC.
04
Front
How is marginal cost calculated?
Back
Marginal cost is the change in total cost divided by the change in output: MC=ΔQΔTC.
05
Front
Where does MC cross AVC and ATC, and why?
Back
MC crosses AVC and ATC at each curve’s minimum: below an average, MC pulls it down; above it, MC pulls it up.
06
Front
What does the long-run average cost curve show?
Back
LRAC gives the lowest average cost attainable at each output when the firm can choose its scale and inputs.
07
Front
What are economies of scale?
Back
Economies of scale occur when LRAC falls as output rises; larger operations may use specialized equipment or spread setup costs across more units.
08
Front
How do economies of scale differ from diminishing marginal product?
Back
Economies of scale are a long-run concept where all inputs can expand together; diminishing marginal product usually describes increasing one input while another is fixed.
09
Front
Why does average fixed cost decline as output rises?
Back
Average fixed cost falls as output rises because the same fixed cost is spread across more units.
10
Front
How can diminishing marginal product raise marginal cost?
Back
With other input prices held constant, diminishing marginal product means more input is needed for each additional unit, raising its marginal cost.
11
Front
How is LRAC related to short-run average cost curves?
Back
In the standard textbook diagram, LRAC forms the lower boundary of a family of short-run average cost curves.
12
Front
What does a flat LRAC segment indicate?
Back
Constant returns to scale occur when LRAC remains roughly flat over a range of output.
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