Chapter 7.3: Cost in the Long Run

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7 Terms

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flexbility

In the long run, a firm has much more ___

2
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User cost of capital

the annual cost of owning and using a capital asset, equal to economic depreciation plus forgone interest.

3
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Wage rate

the price of labor

4
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Rental rate

the cost per year for renting a unit of capital.

5
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equal

If the capital market is competitive, the rental rate should be __ to the user cost.

6
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Isocost line

graph showing all possible combinations of labor and capital that can be purchased for a given total cost.

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Expansion path

the combinations of labor and capital that the firm will choose to minimize costs at each output level.