Term
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Definition
| an organization that comes into being when a person or a group of people decides to produce a good or service to meet a percived demand |
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Term
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Definition
| the amount received from the sale of the produce (q x P) |
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Definition
| the total of (1) out-of-pcket costs and (2) opportunity cost of all factors of production |
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Definition
| the difference between total revenue and total cost |
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Term
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Definition
| profit that accounts for both explict costs and opportunity costs |
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Term
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Definition
| a rate of return on capital that is just sifficient to keep owners and investors satisfied. for relatively risk-free firms, it should be nearly the same as the interest rate on risk-free government bonds |
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Definition
| The period of time for which two conditions hold: the firm is operating under a fixed scale (fixed factor) of production, and firms can neither enter nor exit an industry. |
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Definition
| That period of time for which there are not fixed factors of production: Firms can increase or decrease the scale of operation, and new firms can enter and/or existing firms can exit the industry |
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| optimal method of production |
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Definition
| the production method that minimizes cost for a given level of output |
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Term
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Definition
| the quantitative relationship between inputs and outputs |
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Term
| Labor-intensive technology |
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Definition
| technology that relies heavily on human labor instead of capital |
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| Capital-intensive technology |
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Definition
| technology that relies heavily on capital instead of human labor |
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Term
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Definition
| the additional output that can be produced by adding one more unit of a specific input, ceteris paribus |
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Term
| Law of diminishing demand |
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Definition
| when additional units of a variable input are added to fixed inputs, after a certain point, the marginal product of the variable input declines |
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Term
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Definition
| the average amount produced by each unit of a variable factor of production |
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Term
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Definition
| total revenue - total cost |
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Term
| average product of labor (equation) |
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Definition
total product
_________________
total units of labor |
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Term
| profit-maximizing firms in all industries must make three choices |
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Definition
1. how much output to supply
2. how to produce that output
3. how much of each input to demand |
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Term
| to make decisions, firms need to know three things: |
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Definition
1. the market price of their output
2. the production techniques that are available
3. the prices of inputs |
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Term
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Definition
| Any cost that does not depend on the firms' level of output. These costs are incurred even if the firm is producing nothing. There are no fixed costs in the long run. |
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Term
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Definition
| a cost that depends on the level of produciton chosen |
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Term
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Definition
| total fixed costs plus total variable costs |
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Term
| total fixed costs (TFC) or overhead |
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Definition
| the total of all costs that do not change with output even if output is zero |
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Term
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Definition
| total fixed cost divided by the number of units of output; a per-unit measure or fixed costs. |
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Term
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Definition
| The process of dividing total fived costs by more units of output. Average fixed cost declines as quantity rises. |
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Term
| Total variable cost (TVC) |
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Definition
| the total of all costs that vary with output in the short run |
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Term
| Total variable cost curve |
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Definition
| A graph that shows the relationship between total variable cost and the level of a firm's output |
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Term
| At any given level of output, total variable cost depends on: |
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Definition
1. the techniques of production that are available
2. the prices of the inputs required by each technology |
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Term
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Definition
| the increase in total cost that results from producing 1 more unit of output. Marginal costs reflect changes in variable costs |
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Term
| Average variable costs (AVC) |
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Definition
total variable costs divided by the number of units or output
TVC
q |
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Term
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Definition
total cost divided by the number of units of output
TC
q |
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Term
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Definition
| an industry structure in which there are many firms, each small relative to teh industry, producing identical products and in which no firm is large enough to have any control over prices. In perfectly competitive industries, new competitors can freely enter the market and old firms can exit. |
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Term
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Definition
| undifferentiated products; products that are identical to, or indistinguishable from, one another |
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Term
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Definition
| The total amount that a firm takes in from the sale of its product: the price perunit times the quantity of output th firm decides to produce ( P x q) |
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Term
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Definition
| the additional revenue that a firm takes in when it inceases output by one additional unit. In perfect competition, P = MR |
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Term
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Definition
| the situation in which a firm is earning exactly a normal rate of return |
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Term
| When the price falls below average variable cost, then the firm is better off... |
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Definition
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Term
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Definition
| the lowest point on the average variable cost curve. when price falls below the minimum point on AVC, total revenue is insufficient to cover variable costs and the firm will shut down and bear losses equal to fixed costs. |
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Term
| Short-run industry (market) supply curve |
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Definition
| the sum of the marginal cost curves (above AVC) of all the firms in an industry. |
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Term
| increasing returns to scale, or economies of scale |
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Definition
| an increase on a firm's scale of production leads to lower costs per unit produced |
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Term
| constant returns to scale |
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Definition
| an increase in a firm's scale of production has no effect on costs per unit produced |
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Term
| decreasing returns to scale, or diseconomies of scale |
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Definition
| an increase on a firm's scale of production leads to higher costs per unit produced. |
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Term
| long-run average cost curve (LRAC) |
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Definition
| the "envelope" of a series pf short-run cost curves. |
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Term
| minimum efficient scale (MES) |
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Definition
| the smallest size at which long-run average cost is at its minimum |
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Term
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Definition
| the scale of plant that minimized long-run average costs. |
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Term
| long-run competitive equilibrium |
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Definition
| when P = SRMC = SRAC = LRAC and profits are zero |
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Term
| Partial equilibrium analysis |
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Definition
| the process of examining the equalibrium conditions in individual markets and for households and firms separately |
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Term
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Definition
| the conditional that exists when all markets in an economy are in simultaneous equilibrium |
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Term
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Definition
| the condition in which the economy is producing what people want at the least possible cost |
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Term
| Pareto efficiency or pareto optimality |
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Definition
| a condition in which no change is possible that will make some members of society better off without making some other members of society worse off |
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Term
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Definition
| occurs when resources are misallocated or allocated inefficiently. the result is waste or lost surplus |
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Term
| public goods, or social goods |
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Definition
| Goods and services that bestow collective benefits on memebers of society. Generally, no one can be excluded from enjoying their benefits. the classic example is national defense |
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Term
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Definition
| A cost or benefit imposed or bestowed on an individual or a group that is outside, or external to, the transaction |
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Term
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Definition
| teh absence of full knowledge concerning product characteristics, available prices, and so on |
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