ECON-1006EL Chapter Notes - Chapter 7: Average Variable Cost, Fixed Cost, Variable Cost
23 May 2018
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Chapter 7: Producers in the Short Run
Definitions
Single Proprietorship
A firm that has one owner who is personally responsible for the
firm’s actions and debts
Ordinary Partnership
A firm that has two or more joint owners, each of whom is personally
responsible for the firm’s actions and debts
Limited Partnership
A firm that has two classes of owners: general partners, who take part
in managing the firm and are personally liable for the firm’s actions
and debts, and limited partners, who take no part in the management
of the firm and risk only the money that they have invested
Corporation
A firm that has a legal existence separate from that of the owners
State-Owned Enterprise
(Crown Corporations)
A firm that is owned by the government
Non-Profit Organization (Non-
Governmental Organizations)
Firms that provide goods and services with the objective of just
covering their costs
Multinational Enterprises
(MNEs)
Firms that have operations in more than one country
Dividends
Profits paid out to shareholders of a corporation
Bond
A debt instrument carrying a specified amount, a schedule of interest
payments, and (usually) a date for redemption of its face value
Intermediate Products
All outputs that are used as inputs by other producers in a further
stage of production
Production Function
A functional relation showing the maximum output that can be
produced by any given combination of inputs
Economic Profits
The difference between the revenues received from the sale of output
and the opportunity cost of the inputs used to make the output.
Negative economic profits are called economic losses
Short Run
A period of time in which the quantity of some inputs cannot be
increased beyond the fixed amount that is available
Fixed Factor
An input whose quantity cannot be changed in the short run
Variable Factor
An input whose quantity can be changed over the time period under
consideration
Long Run
A period of time in which all inputs may be varied, but the existing
technology of production cannot be changed
Very Long Run
A period of time that is long enough for the technological
possibilities available to a firm to change
Total Product (TP)
Total amount produced by a firm during some time period
Average Product (AP)
Total product divided by the number of units of the variable factor
used in production
Marginal Product (MP)
The change in total output that results from using one more unit of a
variable
Law of Diminishing Returns
The hypothesis that if increasing quantities of a variable factor are
applied to a given quantity of fixed factors, the marginal product of
the variable factor will eventually decrease
Total Cost (TC)
The total cost of producing any given level of output; it can be
divided into total fixed cost and total variable cost
Total Fixed Cost (TFC)
All costs of production that do not vary with the level of output
Total Variable Cost (TVC)
Total costs of production that vary directly with the level of output
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Document Summary
A firm that has one owner who is personally responsible for the firm"s actions and debts. A firm that has two or more joint owners, each of whom is personally responsible for the firm"s actions and debts. A firm that has a legal existence separate from that of the owners. A firm that is owned by the government. Firms that provide goods and services with the objective of just covering their costs. Firms that have operations in more than one country. Profits paid out to shareholders of a corporation. A debt instrument carrying a specified amount, a schedule of interest payments, and (usually) a date for redemption of its face value. All outputs that are used as inputs by other producers in a further stage of production. A functional relation showing the maximum output that can be produced by any given combination of inputs.
