Principles of Microeconomics - The Production Process: The Behavior of Profit-Maximizing Firms

These flashcards cover key vocabulary and concepts from the chapter on the production process and the behavior of profit-maximizing firms in microeconomics.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision.

Production

The process by which inputs are combined, transformed, and turned into outputs.

Profit

The difference between total revenue and total cost.

Total Revenue

The total amount received by a firm from the sale of its product; calculated as price times quantity of output.

Total Cost

The sum of total fixed costs and total variable costs.

Economic Profit

Profit that accounts for both explicit and opportunity costs.

Normal Rate of Return

A rate of return on capital that keeps owners and investors satisfied, typically aligned with risk-free interest rates.

Short Run

A period where at least one factor of production is fixed, and firms cannot enter or exit the industry.

Long Run

A period in which there are no fixed factors of production, allowing firms to adjust their scale of operation and for new firms to enter or exit the industry.

Optimal Method of Production

The production method that minimizes costs for a given level of output.

Labor-Intensive Technology

A technology that relies heavily on human labor rather than capital.

Capital-Intensive Technology

A technology that relies heavily on capital rather than human labor.

Marginal Product

The additional output produced by adding one more unit of a specific input, assuming other inputs are held constant.

Law of Diminishing Returns

A principle stating that adding more of a variable input to fixed inputs will eventually yield lower additional output.

Average Product

The output produced, on average, by each unit of labor.

Production Function

A mathematical representation of the relationship between inputs and outputs in production.

Isoquant

A graph that shows all combinations of capital and labor that can produce a given amount of output.

Isocost Line

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

Marginal Rate of Technical Substitution

The rate at which one input can be substituted for another while holding output constant.

Input Prices

The costs associated with various inputs required for production.

Cost-Minimizing Technology

The technology choice that minimizes production costs given current input prices.

Production Techniques

The various methods available to firms for producing goods and services.

Complementary Inputs

Factors of production, such as capital and labor, that work together in the production process.

Gains from Modern Management

Improvements in productivity resulting from better management practices and technology.

Cost Curve

A graph that represents the minimum cost of producing each level of output.

Cost-Minimizing Equilibrium Condition

The point where the slope of the isoquant and the slope of the isocost line are equal, indicating cost-effective production.