Microeconomics Chapter 21-23

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Short run
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The time period during which at least one input cannot be changed.
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Long run
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The time period during which all factors of production can be varied.
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Production
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Any activity that results in the conversion of resources into products.
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Prduction function
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The relationship between inputs and maximum physical output; Technological relationship.
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Average physical product
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Total product divided by the variable input.
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Marginal physical product
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The physical output that is due to the addition of one more unit of a variable factor of production.
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Law of diminishing marginal product
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As successive equal increases in a variable factor of production are added to fixed factors of production there will be a point beyond which the marginal product that can be attributed to each additional unit of the variable factor of production will decline.
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Total costs
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The sum of total fixed costs plus total variable costs.
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Fixed costs
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Costs that do not vary with output. fixed costs typically include such expenses as rent on a building. These costs are fixed for a certain period of time.
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Variable costs
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Costs that vary with the rate of production.
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Average fixed costs
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Total fixed costs divided by the number of units produced.
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Average variable costs
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Total variable costs divided by the number of units produced.
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Average total costs
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Total costs divided by the number of units produced.
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Marginal costs
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The change in total costs due to a one-unit change in production rate.
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Economies of scale
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Decreases in long-run average costs resulting from increases in output.
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Constant returns to scale
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No change in long-run average costs when output increases.
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diseconomies of scale
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Increases in long-run average costs that occur as output increases.
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Minimum efficient scale
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The lowest rate of output per unit time at which long-run average costs for a particular firm are at a minimum.
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Planning horizon
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The long run, during which all inputs are variable.
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Long-run average cost curve
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The locus of points representing the minimum unit of cost of producing any given rate of output, given current technology and resource prices.
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Marginal cost is equal to
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Change in total cost divided by change in output and change in total variable cost divided by change in output.
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If, in the short run, the level of output is zero, which of the following statement is true?
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Total varible cost is zero but total cost equals fixed cost, and both of the latter exceed zero
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The marginal cost curve intersects
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The minimum of the average varible cost and average total cost curves
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Marginal cost begins to rise when
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Diminishing marginal product begins
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Average variable cost reaches its minimum
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When average product equals its maximum
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In economics, the planning horizon is defined as
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The long run, during which all inputs are variable
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The locus of points representing the minimum unit cost of producing any given rate of output is the
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Long-run average cost curve
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A decrease in the long run average costs resulting from increasing output is referred to as
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Economies of scale
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Being a price taker essentially means
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A firm cannot influence the market price
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Under perfect competition, a firm that sets its price slightly above the market price would
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Lose all of its customers
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The market demand curve of the perfectly competitive industry is downward-sloping while the demand curve of an individual firm is
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Horizontal with a height equal to the product price
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A firm in a perfectly competitive market maximizes profits when it finds
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The quantity at which total minus total cost is the greatest
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For the perfectly competitive firm, price
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Equals average revenue and marginal revenue
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The goal of the perfectly competitive firm is to
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Maximize total profits
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At a firm’s profit-maximizing rate of production
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Marginal revenue= marginal cost
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At the short run break even point the firm is
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Earning zero economic profit

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