Unit 3 - Production, Cost, and the Perfect Competition Model Guide (copy)
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30 Terms
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Constant returns to scale
output increase directly in proportion to an increase in all inputs (ex.
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Fixed cost
cost that doesn’t change with amount of output produced
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Long run
time period in which all inputs can be variable.
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Rental rate
price of capital.
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Production function
relation between the quantity of inputs a firm uses and the quantity of output it produces.
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Capital
goods that are used to produce goods /services.
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Marginal product
change in overall output when input changes.
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Diminishing marginal returns
as input increases, the output of each input will be less than the previous input.
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Profit
is the excess revenue that a business gets to keep.
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Production function
relation between the quantity of inputs a firm uses and the quantity of output it produces
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Fixed input
an input whose quantity doesnt change
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Variable input
an input whose quantity can change
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Long run
time period in which all inputs can be variable
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Short run
time period in which at least 1 input is fixed
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Marginal product
change in overall output when input changes
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Diminishing marginal returns
as input increases, the output of each input will be less than the previous input
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Output
quantity produced
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Rental rate
price of capital
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Capital
goods that are used to produce goods/services
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Fixed cost
cost that doesnt change with amount of output produced (ex
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Variable cost
cost that changes with amount of output produced
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Marginal cost
cost difference of one additional unit of output (∆TC/∆Q)
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Long run average total cost (LRATC)
same as short run ATC, but bigger
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Economies of scale
LRATC declines as output increases
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Diseconomies of scale
LRATC increaess as output increases
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Constant returns to scale
output increase directly in proportion to an increase in all inputs (ex
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Implicit cost
not an actual cost, a cost that you couldve been earning (ex
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Marginal Revenue
additional revenue gained by producing one more unit
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Exit rule
if P < ATC, exit the market
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Shut down rule
a firm should not produce unless it can cover its variable costs
Note 
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