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Principles of Microeconomics
Chapter 5
14
Economics
Undergraduate 1
12/06/2012

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Term
Price Taker
Definition
A firm that is such a small part of the overall market that it cannot affect the price of a good.
Term
Factors of Production
Definition
Land, labour, raw materials, physical equipment.
Term
Production Function
Definition
technological relationship between inputs and output.
Term
Marginal Product
Definition
Extra output by adding one more unit of input.
Term
Law of Diminishing Marginal Returns
Definition
As equal increments of input are added, there is a point beyond which the marginal product of that input will decrease.
Term
Average Product
Definition
Average output of ALL of the workers (e.g. total output/# of workers)
Term
Fixed Costs
Definition
Costs that do not vary with the level of output (e.g. rent).
Term
Average Fixed Cost
Definition
Total fixed cost divided by quantity produced.
Term
Variable Costs
Definition
Costs that do vary with the level of output. Any cost the firm can change is a variable cost. As output increases, so do variable costs.
Term
Marginal Cost
Definition
Extra cost of the last unit produced. Marginal cost is the same as the addition to the variable costs as output rises.
Term
Average Variable Cost
Definition
Total variable cost divided by the quantity of output.
Term
Average Total Cost
Definition
Total cost divided by the quantity of output.
Term
Marginal Revenue
Definition
Extra revenue from selling an additional unit of output. Marginal revenue is constant and equal to the price.
Term
Shut-Down Point
Definition
The minimum point of the Average Variable Cost curve.
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