Microeconomics Exam 2 Jasso

Productivity

output per unit of input - for example, output per labor hour

efficiency (technical)

maximum output of a good from the resources used in production

opportunity cost

the most desired goods or services that are forgone in order to obtain something else

short run

the period in which the quantity and quality of some inputs can't be changed

Marginal Physical Product (MPP)

the change in total output associated with one additional unit of input

law of diminishing returns

the MPP of a variable input declines as more of it is employed with a given quantity of other (fixed) inputs

profit

difference between total revenue and total cost

Marginal Cost (MC)

increase in total cost associated with a one-unit increase in production

Total Cost (TC)

market value of all resources used to produce a good or service

Fixed Cost (FC)

costs of production that don't change when the rate of output is altered, such as the cost of basic plants and equipment

Variable Costs (VC)

costs of production that change when the rate of output is altered, such as labor and material costs

Average Total Cost (ATC)

Total cost divided by the quantity produced in a given time period

Average Fixed Cost (AFC)

total fixed cost divided by the quantity produced in a given time period

Average Variable Cost (AVC)

total variable cost divided by the quantity produced in a given time period

explicit costs

a payment made for the use of a resource

implicit costs

value of resources used, for which no direct payment is made

economic cost

the value of all resources used to produce a good or service; opportunity cost

long run

the time period long enough in which all inputs can be varied

economies of scale

reductions in minimum average costs that come through increases in the size/scale of plant and equipment

constant returns to scale

increases in plant size do not affect minimum average cost: minimum per-unit costs are identical for small plants and large plants

unit labor costs

hourly wage rate divided by output per labor-hour

economic profit

difference between total revenues and total economic costs

normal profit

the opportunity cost of capital; zero economic profit

monopoly

a firm that produces the entire market supply of a particular good or service

market structure

the number and relative size of firms in an industry

perfect competition

a market in which no buyer or seller has market power

market power

the ability to alter the market price of a good or service

competitive firm

a firm without market power, with no ability to alter the market price of the goods it produces

production decision

the selection of the short-run rate of output (with existing plants and equipment)

total revenue

Price x Quantity

profit maximization rule

produce at that rate of output where marginal revenue equals marginal cost

shutdown point

the rate of output where price equals minimum AVC

investment decision

the decision to build, buy, or lease plants and equipment; to enter or exit an industry

competitive market

a market in which no buyer or seller has market power

barriers to entry

obstacles, such as patents, that make it difficult or impossible for would-be producers to enter a particular market

profit per unit

total profit divided by the quantity produced in a given time period; price minus average total cost

short-run competitive equilibrium

P=MC

long-run competitive equilibrium

P=MC=minimum ATC

market mechanism

the use of market prices and sales to signal desired outputs (or resource allocations)

marginal cost pricing

the offer (supply) of goods at prices equal to their marginal cost

Antitrust

government intervention to alter market structure or prevent abuse of market power

contestable market

an imperfectly competitive industry subject to potential entry if prices or profits increase

natural monopoly

an industry in which one firm can achieve economies of scale over the entire range of market supply

consumer surplus

the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays

marginal revenue

the change in total revenue from an additional unit sold