AP Microeconomics Unit 3 Vocabulary

These flashcards cover key vocabulary terms and concepts vital for understanding AP Microeconomics, focusing on production, costs, and market structures.

Short Run

A period in which at least one input is fixed.

Variable Input

A factor of production that can be changed in the short run.

Fixed Input

A factor of production that cannot be changed in the short run.

Labor

The human effort used in the production process.

Total Product

The total output produced by a given quantity of inputs.

Marginal Product

The additional output generated by employing one more unit of input.

Average Product

Total product divided by the number of units of input used.

Law of Diminishing Marginal Returns

As more of a variable input is added to a fixed input, the additional output generated will eventually decrease.

Increasing Returns

A situation where an increase in inputs leads to a more than proportional increase in output.

Diminishing Returns

A situation where an increase in inputs leads to a less than proportional increase in output.

Negative Returns

When adding an additional unit of input decreases total output.

Fixed Costs

Costs that do not change with the level of output.

Variable Costs

Costs that vary directly with the level of output.

Total Costs

The sum of fixed costs and variable costs.

Average Fixed Cost

Fixed cost per unit of output.

Average Variable Cost

Variable cost per unit of output.

Average Total Cost

Total cost per unit of output.

Marginal Cost

The cost of producing one more unit of output.

Perfect Competition

A market structure characterized by a large number of small firms producing identical products.

Price Taker

A firm that must accept the market price for its product; it cannot influence the price.

Total Revenue

Total income received from selling goods or services, calculated as price times quantity.

Marginal Revenue

The additional revenue generated from selling one more unit of output.

Average Revenue

Total revenue divided by the number of units sold.

Economic Profit

Total revenue minus total costs, including both explicit and implicit costs.

Normal Profit

The minimum profit necessary to keep a firm in business; it occurs when total revenue equals total costs.

Profit Maximization Rule

A firm maximizes profit by producing the quantity where marginal cost equals marginal revenue.

Shutdown Rule

A firm should continue to operate in the short run if total revenue exceeds variable costs.

Short-Run Supply Curve

A curve that shows the relationship between price and the quantity supplied in the short run.

Long Run

A period in which all factors of production can be varied.

Long-Run Average Total Cost

The lowest cost per unit of production achievable when all inputs are variable.

Economies of Scale

The cost advantages that a firm obtains due to scale of operation.

Constant Returns to Scale

A situation in which increasing the quantity of inputs does not change the average cost of production.

Diseconomies of Scale

An increase in average costs as a firm scales its production.

Minimum Efficient Scale

The lowest level of output at which long-run average cost is minimized.

Allocative Efficiency

A state of the economy in which production represents consumer preferences.

Productive Efficiency

A situation in which goods are produced at the lowest possible cost.

Long-Run Equilibrium

A situation where firms earn zero economic profit and the market supply equals market demand.

Increasing-Cost Industry

An industry where the cost of production increases as output increases.

Decreasing-Cost Industry

An industry where the cost of production decreases as output increases.

Constant-Cost Industry

An industry where production costs remain the same regardless of the level of output.

Entry

The act of new firms starting to produce in a market.

Exit

The act of firms leaving a market.

Cost Minimization

The process of reducing costs while producing a given level of output.

Marginal Product per Dollar

The additional output generated from an additional dollar spent on input.

Capital

The financial assets or physical assets used in production.

Input Prices

The costs associated with the factors of production.

Change in Output

The difference in total product resulting from a change in the quantity of inputs used.

Change in Labor

The difference in the amount of labor employed that affects total production.

Total Revenue

The overall revenue received from sales, which is equal to price times quantity sold.

Marginal Relationships

The changes in cost or quantity associated with producing additional units.