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AP Microeconomics Unit 3
Terms in this set (49)
Money spent on something.
Benefits foregone by a production choice; opportunity cost.
Total revenue - explicit costs - depreciation
Total revenue - explicit and implicit costs
Total revenue - total cost
Marginal revenue; benefit of making/selling one more of something. Subtract current from previous on a table, divide by change in quantity.
Cost of making/selling one more of something. Subtract current from previous on a table, divide by change in quantity.
optimal output rule
Profit is maximized where MC = MR.
marginal cost curve
Shows how the cost of producing one more unit depends on the quantity that has already been produced.
marginal revenue curve
A horizontal line at the market price where MR is constant as quantity produced changes.
average product of labor
Total output/quantity labor.
The time period in which at least one input is fixed.
The time period in which all inputs can be varied.
Input whose quantity is fixed for a period of time and can't be varied.
An input whose quantity the firm can vary at any time.
total product curve
Shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input. Shows diminishing returns to an input.
diminishing returns to an input
When an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input.
The additional quantity of output produced by using one more unit of that input.
short run costs
Usually smaller and less easy to change due to fixed inputs. Example: small shipments of materials.
long run costs
Usually larger and are made when other inputs aren't fixed, and take longer to pay off. Example: renovations, machines.
marginal product of labor
Change in quantity of output produced by one additional unit of labor. Divide change in output by change in labor. If change in labor is 1, then subtract current number from previous.
A cost that does not depend on the quantity of output produced. It's the cost of the fixed input. Example: rent.
A cost that depends on the quantity of output produced. It's the cost of the variable input. Gets steeper due to diminishing returns. Example: labor.
The sum of the fixed and variable costs of producing at a certain level of output. Slopes upward due to increasing variable cost, and gets steeper as quantity of output increases, due to diminishing returns to labor.
interactions of fixed, variable, and total cost curves
As inputs increase, total product increases by less each time until they begin to decrease. Example: labor.
average fixed cost
Fixed cost/quantity output. Slopes downward as fixed cost is a constant.
average variable cost
Variable cost/quantity output.
average (total) cost
Total cost/quantity output. The U-shaped curve falls at low levels of output and then rises at higher levels, due to spreading and diminishing returns effects.
The quantity at which average total cost is lowest - it corresponds to the bottom of the U-shaped total cost curve.
interactions of marginal cost, average total cost, average fixed cost, and average variable cost.
Marginal cost intersects average total cost and average variable cost curves at their minimum.
The larger the output, the greater the quantity of output over which fixed cost is spread, leading to lower average fixed cost. Dominates over diminishing returns effect at low levels of output
diminishing returns effect
The larger the output, the greater the amount of variable input required to produce additional units, leading to higher average variable cost. Dominates over spreading effect at high levels of output.
long run average cost curve
Shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output.
economies of scale
Occur when LRATC declines as output increases (slopes down). Can result from increasing returns to scale.
increasing returns to scale
Occur when output increases more than in proportion to an increase in all inputs. For example, doubling all inputs would cause output to more than double.
diseconomies of scale
Occur when LRATC increases as output increases (slopes up). Can result from decreasing returns to scale.
decreasing returns to scale
Occur when output increases less than in proportion to an increases in all inputs.
constant returns to scale
When output increases directly in proportion to an increase in all inputs.
A cost that has already been incurred and is nonrecoverable. Should be ignored in a decision about future actions.
The fraction of the total industry output accounted for by that firms output.
characteristics of a perfectly competitive market
Same product sold
Sold at market price
Lots of consumers
Small market share
An a market where all participants are price takers.
Where one firm is the only producer of a good with no close substitutes.
characteristics of monopolies
100% of market
Barriers to entry
An industry with only a small number of firms.
characteristics of oligopolies
A few leading firms
Barriers to entry
Some price control (imperfect competition)
A market structure in which there are many competing firms in an industry, each firm sells a differentiated product, and there is free entry and exit from the industry in the long run.
characteristics of monopolistic competition
Some control over price
THIS SET IS OFTEN IN FOLDERS WITH...
AP Microeconomics Unit 2
AP Microeconomics Unit 3
AP Microeconomics Unit 4
AP Microeconomics Unit 5
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