AP Microeconomics Unit 3

Production Function

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

Marginal Product

The additional output produced by one more unit of labor.

Marginal Cost of Labor

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

Fixed Costs

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

Variable Costs

Costs that change with the quantity of output.

Total Costs

The sum of fixed costs and variable costs.

Marginal Cost

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

Average Variable Cost

Variable cost divided by the quantity of output.

Average Total Cost

Total cost divided by the quantity of output.

Productive Efficiency

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

Diseconomies of Scale

Average costs increase due to inefficient bureaucracy as production expands.

Profit Maximization

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

Marginal Revenue

Revenue from selling an additional unit of a good.

Perfect Competition

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

Long Run Equilibrium

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

Efficiency in Perfect Competition

Firms are allocatively and productively efficient in the long run.

Increasing Cost Industries

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

Long Run Supply Curve

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