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1

Production Function

Shows the relationship between the quantity of labor a firm hires and the quantity of output that number of workers produces.

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2

Marginal Product

The additional output produced by one more unit of labor.

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3

Marginal Cost of Labor

The wage paid to workers divided by the marginal product of labor.

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4

Fixed Costs

Costs associated with production that don't change with output.

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5

Variable Costs

Costs that change with the quantity of output.

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6

Total Costs

The sum of fixed costs and variable costs.

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7

Marginal Cost

The change in total cost divided by the change in quantity of output.

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8

Average Variable Cost

Variable cost divided by the quantity of output.

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9

Average Total Cost

Total cost divided by the quantity of output.

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10

Productive Efficiency

Quantity at the minimum point of the average total cost curve with the lowest average cost of production.

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11

Diseconomies of Scale

Average costs increase due to inefficient bureaucracy as production expands.

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12

Profit Maximization

Firms seek to maximize profit, considering accounting profit and economic profit.

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13

Marginal Revenue

Revenue from selling an additional unit of a good.

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14

Perfect Competition

Market structure with many firms selling identical products, low barriers to entry, and zero economic profit in the long run.

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15

Long Run Equilibrium

Firms earn zero economic profit, and price equals the minimum of the average total cost curve.

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16

Efficiency in Perfect Competition

Firms are allocatively and productively efficient in the long run.

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17

Increasing Cost Industries

More firms in the market shift each individual firm's cost curves up.

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18

Long Run Supply Curve

Horizontal curve where price equals the minimum average total cost in perfect competition.

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