Are all costs fixed in the short run?

Available Fishing Effort. Available fishing effort, also called catch or fishing capacity, refers.Average Fixed Cost. Average fixed cost is fixed cost divided by output, i.e. fixed

Are all costs fixed in the short run?
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Available Fishing Effort. Available fishing effort, also called catch or fishing capacity, refers.

Average Fixed Cost. Average fixed cost is fixed cost divided by output, i.e. fixed cost per unit of output. It is inherently a short-run concept.

Average Total Cost. Average total cost is total cost divided by total output, i.e. total cost per unit of output. Average total cost can decomposed into average fixed cost (fixed cost divided by output) and average variable cost (variable costs divided by output). Because the fixed factors are not necessarily at their long-run optimum, average total cost does not generally correspond to long-run average cost except for the optimum levels of fixed factors. Average total cost is sometimes called short-run average cost.

Average Variable Cost. Average variable cost is variable cost divided by output, i.e. variable cost per unit of output. It is inherently a short-run concept.

Best-Practice Techniques. Best-practice techniques are defined as the techniques at each time period which employ the most recent technical advances and are economically appropriate to current factor (input) prices. They correspond to the idea of the most up-to-date techniques currently available. Best-practice techniques yield minimum costs in terms of the production function and relative factor prices of each date.

Capacity. Capacity is a potential output which may be equated to a technologically-derived maximal output or an economically-derived output given the stock of capital, other inputs, in fisheries the resource stocks, and the state of technology. The former concept is a technologically-derived physical measure of capacity and the latter is an economic measure (i.e., an optimum level of output). Capacity is a short-run concept, in which one or more factors of production (usually the capital stock) and the state of technology are fixed or quasi-fixed (see below). In addition, the resource stocks are held fixed at some level so that the capacity output is conditional on the resource stocks, where the resource stock abundance also sets an upper limit on output in the stock-flow production technology. The technologically-derived primal definition gives the maximal level of output which can be potentially be produced. The economic definition gives the level of output which should be produced given the input prices and levels of fixed and quasi-fixed factors of production and output corresponding to the tangency of the short- and long-run average cost curves. Both measures depend on the resource stock abundance.

Capacity Utilization. Capacity utilization is usually defined as the ratio of actual output to some measure of potential output. Potential output may represent the maximum output that may be produced given a firms short-run stock of capital. Potential output can also represent to an economic optimum in the short-run, corresponding to the output at which the short-run and long-run average total cost curves are tangent. Capacity and capacity utilization are strictly short-run concepts, defined or measured conditional on a fixed stock of capital and the state of technology. In the long-run, capital may be adjusted in response to changing economic conditions, or there may be technical change, and thus capacity and capacity utilization may also change.

Capital. Capital is any previously produced input or asset of a firm or any other producer. As such, capital is a stock (see below). In practice, capital can be thought of as real assets, such as vessels, gear, and equipment.

Capital Services. Capital services refer to the flow (see below) of productive services from the stock of capital, such as vessel-days fished. Capital services recognizes that the same stock of capital may be used more or less intensively (capital utilization).

Capital Utilization. Capital utilization refers to the ratio of the desired stock of capital (given output quantity and input prices) to the actual stock of capital. An alternative definition of capital utilization is the ratio of capital services to the stock of capital. Endogenous Capital Utilization refers to capital utilization which responds to changes in market conditions, such as input or output prices and technological constraints such as weather. Thus capital utilization is variable in the short run, when the capital stock is fixed, but fixed in the long run when the capital stock is variable. In the long run, the firm must make the simultaneous choice of the levels of capital utilization and the capital stock.

Capital Utilization Versus Capacity Utilization. Capital utilization captures how much of the existing capital stock is being used. Economic notions of capacity utilization provides information about short-run vs. long-run equilibrium of a firm or industry and incentives for investment and disinvestment. Technologically-derived physical notions of capacity utilization indicate how much of a production facilitys maximum physical capacity output, as determined by the production technology, is produced in a given time period.

Catchability. An input bundle often catches an increasing proportion of the residual resource as the stock declines, due to the concentrating or schooling behavior of many fish species and the nature of the fishing technology. As the resource stock declines in size, so does its spatial distribution, but the density of fish over an area or school size changes little. Fishing firms can quickly located the remainder, even of a heavily depleted stock, and harvest at rates similar to those of a higher stock level.

Catch Capacity. Catch capacity is another term used for available fishing effort or maximum effort capacity.

Congestion of inputs. Congestion of inputs refers to the case of too much use of an input. An example of input congestion is the open access fishery in which the expansion of total effort by the fleet causes the catch of each vessel or unit of effort to decline.

Data Envelopment Analysis (DEA). Data envelopment analysis is a nonparametric or mathematical programming approach to determine optimum solutions, such as the best-practice production frontier, relative to individual firms or vessels. DEA can be used to measure output- or input-oriented technical efficiency. DEA optimizes on each individual observation with an objective of calculating a discrete piecewise frontier determined by the set of Pareto-efficient decision-making units.

Discretionary Input. A discretionary input is any input whose level or utilization can be under the control of the management. It corresponds to a variable input.

Discretionary Output. A discretionary output is any output whose level or production is under the control of management. It corresponds to the conventional concept of produced.

Externalities. Externalities occur when the actions of one person or firm directly affect the welfare of another person or firm. There are two basic types of externalities: (1) pecuniary and (2) technical. A primary concern is the technical externality. A technical externality occurs when the output of a firm or group of firms affects the production of other or all firms. It also may be viewed from the perspective of consumption. An external cost occurs when the action diminishes the welfare of the affected person or firm and an external benefit occurs when the action enhances the welfare of the affected person or firm. In both cases, there is no compensation. The externality drives a wedge between private and social costs or benefits.

Factors of Production. Factors of production are economic inputs used in the production process, i.e. they are any or good or service which contribute to the production of an output. Factors of production typically include capital, labor, energy, and materials.

Factor Requirements Function. The factor requirements function relates the minimal amount of an input required to produce one or more outputs. It is one way to depict the production technology subject to a fixed or quasi-fixed factor of production.

Fishing Effort Nominal fishing effort. Refers to the factors of production devoted to fishing.

Effective fishing effort. Refers to the mortality generated in a stock of a given size and distribution. Fishing biologists regard effect effort as proportional to mortality rates experienced by the fish stock.

Fishing Power. Fishing power in the tradition of Garstand, Beverton and Holt, and Gulland refers to relative efficiency between gear and vessel types and over time, based on total annual catch. Following Gulland (1956), fishing power can be defined as the product of the area of influence of the gear during a unit operation and the efficiency of the gear during that operation. Because absolute fishing power is difficult to measure, the concept of relative fishing power is frequently used. Relative fishing power as, defined by Beverton and Holt (1957, pp. 172-173) is, the ratio of the catch per unit fishing time of a vessel to that of another taken as standard and fishing on the same density of fish on the same type ground. More operationally, fishing power of any vessel can be defined by reference to a standard vessel, whose fishing power is expected to be constant, by comparing the catches of these vessels when fishing at the same time and place. This standardization attempts to account for heterogeneity in vessel characteristics, such as size, age, engine horsepower, gear, and skipper skill.

Fishing Power. Fishing power, as used in the fisheries capacity literature, refers to the potential ability of a vessel to catch fish, with this potential defined in terms of average vessel characteristics rather than the catch rates per unit of time of individual vessels (the Garstand-Beverton and Holt-Gulland usage). In practice, this definition of fishing power is equated to one more measures of the capital stock, de facto becoming synonymous with capital stock.

Fixed Costs. Fixed costs are those costs which are invariant with respect to the level of output produced in the short run within the limits of the production plant and are hence independent of the scale of production. Fixed costs include any set-up costs. Fixed costs also include costs that are shared among different outputs and costs that are output-specific. Over the long run, costs which are deemed to be fixed in the short run are variable, except in the extreme case in which the rate of depreciation with respect to a piece of capital is zero.

Fixed Factor. Fixed factors are factors of production (inputs) whose levels are held fixed in a time period and hence whose services do not vary with the amount of output produced.

Flow. Flow refers to the change in the stock over an interval of time.

Gross Capital Stock. Gross capital stock in a time period refers to the stock of capital that survives to the end of the time period in question. Gross capital stock excludes the effects of depreciation.

Homothetic Separability. Homothetic separability is a condition that allows formation of a consistent aggregate output or input bundle. It is a condition requiring: (1) marginal rates of substitution (transformation) among inputs (outputs) among the inputs (outputs) that are invariant to changes in the levels of other inputs and outputs and (2) constant returns to scale for the function that aggregates the inputs or outputs.

Inputs. Another term for the factors of production. See factors of production.

Investment. Refers to changes in the capital stock in a given time period. Gross investment is the sum of replacement investment and net investment in a time period. Replacement investment is that amount of investment in a time period designed merely to replace the amount of capital that has deteriorated or been scrapped. Net investment refers to the net increment to the capital stock since the last time period and equals total investment minus replacement investment.

Joint Costs. Joint costs are production costs incurred by the firm when two or more outputs are jointly produced. Joint costs and joint production can arise from either an interdependent production process or the presence of allocatable fixed factors. Jointness arises because a firm finds it less costly to incur costs relating to two or more cost objects than to incur costs individually for both.

Joint Production. Joint production refers to a production process in which all inputs are required to produce all output. Separate production processes do not exist for different species or groups of species.

Leontief Aggregation. Leontief aggregation requires the product or factor quantities in question to vary proportionately over time. Thus an aggregate output can be specified if all outputs remain in fixed proportions over time (called Leontief output separability) and an aggregate input can be specified if all inputs remain in fixed proportions over time (called Leontief input separability).

Long Run. Long run refers to the time period in which all factors of production can be adjusted at minimum cost.

Long Run Average Cost. Long run average cost is total cost in the long run divided by output, i.e. long run total cost per unit of output. When all factors of production are variable, the firm will optimize in the choice of fixed factors and hence long-run costs depends only on the input prices and level of output. Long-run average cost equals Along-run average variable [emailprotected] since all costs are variable in the long run; Along-run fixed [emailprotected] are zero for the same reason.

Malleable Capital. Malleable capital is that capital for which there is an opportunity to sell or use for another purpose the capital over the time period of consideration. Non-malleable capital refers to the existence of constraints upon the disinvestment of capital assets utilized in production or exploiting a natural resource stock. Perfectly non-malleable capital has no alternative uses (the resale price is zero) and a depreciation rate identically equal to zero. Quasi-malleable capital also has no alternative uses (and a resale price of zero) but a positive depreciation rate. In sum, the opportunity cost of perfectly non-malleable or quasi-malleable capital is zero and hence it is a sunk cost.

Maximum Effort Capacity. Maximum Effort capacity refers to the maximum amount of effort that can be available in a fishery and equals the amount of capital invested in the fishery, represented by the number of standardized fishing vessels. See available fishing effort.

Nondiscretionary Input. A nondiscretionary input is an input whose level or utilization is not under the control of management. It corresponds to a quasi-fixed or fixed factor of production. It also may be viewed as a minimum required level of an essential variable input.

Nondiscretionary Output. A nondiscretionary output is an output whose production is not under the control of management.

Nonparametric. Nonparametric refers to the absence of a specific functional form for a production technology. In practice, nonparametric is often a short-hand expression for mathematical programming.

Opportunity Cost. Opportunity cost is the foregone value of resources used in their next best alternative; a currently available alternative that is sacrificed. Opportunity cost of providing fish is the value of the goods that could be produce if the productive resources used in the fishery were employed in their next best alternative. The term social opportunity cost is sometimes used instead of simply opportunity cost.

Overcapacity. Overcapacity in fisheries refers to a situation for which the capacity output (e.g. maximum possible output) is greater than some desired target level of output, whether that output level corresponding to regulated output levels, such as total allowable catches, or that output level corresponding to cost minimization.

Overcapitalization. Overcapitalization refers to an actual capital stock that is in excess of that optimum capital stock required to produce some desired target output level. This desired output level can be either a regulated output level, such as total allowable catch or the capacity output level in an unregulated situation (i.e., without total allowable catches). Overcapitalization can be technological, in which case the optimum capital stock is that which corresponds to the minimum quantity of capital stock as determined by the production technology required to produce the desired output level, and given some capital utilization rate. Overcapitalization can be economic, in which case the optimum capital stock is that which minimizes the costs of producing the desired output level.

Peak-to-Peak Method. The peak-to-peak method defines capacity by measuring the observed relationship between catch and fleet size. Periods of highest catch, given the harvesting technology, capital stock, resource stock, and state of technology and productivity, provide measures of full capacity.

Primal. Primal (loosely speaking) refers to physical quantities or measures.

Production Function. A production function is a quantitative or mathematical description of the various technical production possibilities faced by a firm. The production function gives the maximum flow of output(s) in physical terms for quantity flows of the factors of production in physical terms. The production process represents the transformation of input flows into output flows. The production function differs from the technology in that it presupposes technical efficiency and states the maximum output obtainable from every input combination.

Profit. Profit is the difference between revenue and cost. Depending on whether the period of production is in the short run (a least one factor of production held fixed or constant) or long run (all factors of production are freely variable), there is a corresponding short-run or long-run profit. Short-term profit is revenue less short-run costs, so that short-run profit includes the fixed costs (costs of durable equipment like boats).

Quasi-Fixed Factor. Quasi-fixed factors are factors of production that can be adjusted in a time period, the short run, but will not be adjusted all the way to the equilibrium level because of constraints such as adjustment costs.

Rent. Rent is a residual or surplus B the difference between the price of a good produced using a natural resource and the unit costs of turning that natural resource into the good. What remains after the costs of factors of production are netted out is the value of a natural resource. Rent is a flow. Fishing rent is identical with profit only if the owner or the manger of the resource cannot influence the market prices of fish and fishing inputs.

Rental Price. The rental price of a durable input, such as capital, refers to the one-period price corresponding to one periods use of this durable input. The durable input is a stock, with a corresponding asset price, and the flow of services from this stock (asset) has a one-period rental price. There are two concepts of rental price. The ex ante rental price is defined as the implicit (or possibly explicit) rent that is expected to be paid in each future time period. The actual or ex post rental price is the gross quasi-rent realized from the capital stock when labor is adjusted to meet fluctuations in demand. It is the residual income accruing to the quasi-fixed stock (revenue less payment to all variable inputs). The rental price generally includes the one-period costs of interest and depreciation and sometimes the property insurance premium rate (if the relevant durable asset is insured), the combined and valorem property tax rate, and changes in asset prices resulting in capital gains or losses to their owners. The life of the asset affects this price. (More technically, an existing durable input has a positive social opportunity cost if the input is deemed malleable for the period of analysis and the alternative use of this input generates a positive net social benefit. The question is: what fraction of the social opportunity cost should be charged to the current period and what fraction should be charged to future periods?)

Services Price. An alternative term for rental price of an asset or durable input. See rental price.

Short Run. Short run refers to a period of time sufficiently limited that one or more factors of production cannot be altered but other factors of production can costlessly be adjusted.

Short-Run Average Cost. Short-run average cost is another term for average total cost (see above).

Short-Run Average Variable Cost. Short-run average cost is the short-run variable cost per unit of output. Short-run average cost is short-run or variable cost divided by total output. Short-run average cost is a short-run concept, where at least one factor of production is held fixed.

Social Opportunity Cost. An alternative term for opportunity cost. See opportunity cost.

Standardization of Fishing Power. Standardization of fishing power provides a measure of relative catch rates among vessels fishing on the same density of fish on the same type of ground. Fishing power of any vessel can be defined by reference to a standard vessel whose fishing power is expected to remain constant. Standardization attempts to account for heterogeneity in vessel characteristics.

State of Technology. State of technology refers to the current, existing state of technical knowledge of how goods and services may be produced. If production is defined as a quantitative process of combining certain given productive services, it is the knowledge of these different possible combinations that is technical knowledge in any given time, and hence the state of technology. Changes in the State of Technology refer to technical change or technical progress. Technical change can be either embodied, in which the changes in the state of technology are incorporated or embodied in one or more inputs, or disemobied, in which the existing inputs are used to produce more of the same product and the changes in the state of technology are not embodied in any input.

Stochastic Production Frontier. The stochastic production frontier gives the maximum flow of outputs in physical terms for quantity physical flows of the factors of production and specifically account for technical inefficiency. There are two error terms: (1) a random error term to account for stochastic noise and (2) an error term to specifically account for technical inefficiency.

Stock. Stocks of goods or resources are the sources of input or resource flows or are the results of output flows. A stock is obtained as the sum (integral) of output, input, or resource flows during a certain time period.

Sunk Cost. Sunk costs are closely related to fixed costs. The essential characteristic of a sunk cost is that some productive activities are not easily converted into other productive uses. Sunk costs are not recoverable, nor salvageable, and hence have zero opportunity cost.

Technical Efficiency. Technical efficiency occurs when the maximum amount of an output is produced for a given set of inputs (output-oriented technical efficiency) or when the minimum amount of inputs are required to produced a given output level (input-oriented technical efficiency).

Technological Constraints. Technological constraints are those constraints that concern the feasibility of production.

Total Costs. Total costs include all costs of production. Total cost is a long-run concept. Hence, total costs include both variable costs (costs of all variable inputs) and fixed costs (costs of all fixed inputs).

Variable Costs. Variable costs are the costs associated with the variable inputs (factors of production) used in production of a particular output. Variable costs directly vary with the level of output produced. Variable cost is obtained as the sum of the variable inputs measured in physical units multiplied by their respective prices.

Variable Input Utilization Rate. The variable input utilization rate measures the ratio of optimal use of a variable input to observed use.

Variable Inputs. Variable inputs are factors of production that can be freely varied in a time period and hence vary according to the amount of output produced. The term variable factors is sometimes used.

Vintage. Vintage refers to the age of the capital stock and the best practice techniques that were embedded in them at the time of construction and installation. Thus capital inputs can be disaggregated into vintages, with older vintages expected to embody less efficient input combinations than newer vintages. The concept of vintage assumes that technological progress is emobdied in the capital stock.

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