Ch 9-10
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Created by:
aroberts226 on April 10, 2012
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27 terms
Terms | Definitions |
|---|---|
 breaking even | The situation in which a firm is earning exactly a normal rate of return. |
| shutdown point | The minimum point on a firm's average variable cost curve; if the price falls below this point, the firm shuts down production in the short run |
| short-run industry supply curve | The sum of the marginal cost curves (above AVC) of all the firms in an industry. |
| economies of scale | (increasing returns to scale) An increase in a firm's scale of production leads to lower costs per unit produced. |
| constant returns to scale | An increase in a firm's scale of production has no effect on costs per unit produced. |
| diseconomies of scale | (decreasing returns to scale) An increase in a firm's scale of production leads to higher costs per unit produced. |
| long-run average cost curve | The "envelope" of a series of short-run cost curves. |
| minimum efficient scale | The smallest size at which the long-run average cost curve is at its minimum. |
| constant returns | Technically, the term means that the quantitative relationship between input and output stays constant, or the same, when output is increased. Constant returns to scale mean that the firm's long-run average cost curve remains flat. |
| optimal scale of plant | The scale of plant that minimizes average cost. |
| long-run competitive equilibrium | P = SRMC = SRAC = LRAC |
| external economies. | When long-run average costs decrease as a result of industry growth |
| external diseconomies | When average costs increase as a result of industry growth |
| long-run industry supply curve | A curve that traces out price and total output over time as an industry expands. |
| decreasing-cost industry | An industry that realizes external economies—that is, average costs decrease as the industry grows. The long-run supply curve for such an industry has a negative slope. |
| increasing-cost industry | An industry that encounters external diseconomies—that is, average costs increase as the industry grows. The long-run supply curve for such an industry has a positive slope. |
| constant-cost industry | An industry that shows no economies or diseconomies of scale as the industry grows. Such industries have flat, or horizontal, long-run supply curves. |
| derived demand | The demand for resources (inputs) that is dependent on the demand for the outputs those resources can be used to produce. |
| productivity of an input | The amount of output produced per unit of that input. |
| Inputs | can be complementary or substitutable. Two inputs used together may enhance, or complement, each other. |
| marginal product of labor | The additional output produced by 1 additional unit of labor. |
| marginal revenue product | The additional revenue a firm earns by employing 1 additional unit of input, ceteris paribus. MRPL = MPL × PX |
| factor substitution effect | The tendency of firms to substitute away from a factor whose price has risen and toward a factor whose price has fallen. |
| output effect of a factor price increase | When a firm decreases (increases) its output in response to a factor price increase (decrease), this decreases (increases) its demand for all factors. |
| demand-determined price | The price of a good that is in fixed supply; it is determined exclusively by what households and firms are willing to pay for the good. |
| pure rent | The return to any factor of production that is in fixed supply. |
| technological change | change The introduction of new methods of production or new products intended to increase the productivity of existing inputs or to raise marginal products. |
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