Summary of Economics of Strategy Book Essay

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Chapter 1, Basic Microeconomic principles

TC function: Represent the relationship between total cost and output, assuming that the firm produces in the most efficient manner possible given its current technological capabilities.

Semifixed: fixed over certain ranges of output but variable over other ranges

AC(Q): average cost function; describes how the firms average cost function or per unit of output costs vary with the amount of output it produces.  When average costs decreases as output increases, there are economies of scale

Margincal cost: refers to the rate of change of total cost with respect to output the incremental cost of producing exactly one more unit of output. Margincal cost often depeds on the total volume
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If you produce a lower quantity of output it could be that you should use another technology than someone who produces a large amount of output Short-run economies of scale: reductions in average costs due to increase in capacity utilization in that occur within a plant of a given size Long-run economies of scale: reductions due to adaption of a technology that has high fixed costs but lower variable costs Indivisibilities are more likely when production is capital intensive: Capital intensive: when the costs of productive capital such as factories and assembly lines represent a signifi-cant percentage of total costs.
2)Increased productivity of variable inputs (mainly having to do with specialization) Materials or labor intensive: when most production expenses go to raw materials or labor (are variable, variable costs) “the division of labor is limited by the extent of the market: division of labor: refers to the specialization of productive
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