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price taking firm
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a firm whose actions have no effect on the market price of the good or service it sells
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price taking consumer
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a consumer whose actions have no effect on the market price of the good or service he or she buys
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perfectly competitive market
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a market in which all market participants are price takers
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perfectly competitive industry
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an industry in which all producers are price takers
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market share
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the fraction of the total industry output accounted for by a firms output
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standardized product
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output of different producers regarded by consumers as the same good, commodity
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free entry and exit
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describes an industry that potential producers can easily enter or current producers can leave
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monopolist
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a firm that is the only producer of a good that has no close substitutes
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monopoly
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an industry controlled by a monopolist
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barrier to entry
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something that prevents other firms from entering an industry
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natural monopoly
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a monopoly that exists when increasing returns to scale provide a large cost advantage to having all output produced by a single firm
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patent
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a temporary monopoly given by the government to an investor for the use or sale of an invention
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copyright
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the exclusive legal right of the creator of a literary or artistic work to profit from that work
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oligopoly
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an industry with only a small number of producers
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oligopolist
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a firm in an industry with only a small number of producers
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imperfect competition
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a market structure that does not meet the conditions of perfect competition
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concentration ratios
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measure the percentage of industry sales accounted for by the x largest firms
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hhi
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the square of each firms share of market sales summed over the industry
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monopolistic competition
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a market structure in which there are many competing firms in an industry, each firm sells a differentiated product, and there is free entry into and exit from the industry in the long run
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explicit cost
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a cost that involves actually laying out money
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implicit cost
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a cost that does not require the outlay of money, it is measured by the value of forgone benefits
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accounting profit
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a business's revenue minus the explicit costs only
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economic profit
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a business's revenue minus both the explicit and implicit costs
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implicit cost of capital
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the opportunity cost of the capital used by a business
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normal profit
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an economic profit equal to zero, the firm should stay in business
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principle of marginal analysis
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the proposition that the optimal quantity is the quantity at which marginal benefit is equal to marginal cost
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marginal revenue
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the change in total revenue generated by an additional unit of output
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optimal output rule
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profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost
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marginal cost curve
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a graphical representation showing how the cost of producing one more unit depends on the quantity that has already been produced
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marginal revenue curve
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a graphical representation showing how marginal revenue varies as output varies
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production function
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the relationship between the quantity of inputs a firm uses and the quantity of output it produces
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fixed input
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an input whose quantity is fixed for a period of time and cannot be varied
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variable input
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an input whose quantity can vary at any time
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long run
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the time period in which all inputs can be varied
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short run
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the time period in which at least one input is fixed
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total product curve
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a graphical representation of the production function, showing how the quantity of output depends on the quantity of the variable input for a given quantity of the fixed input
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marginal product
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the additional quantity of output produced by using one more unit of that input
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diminishing returns to an input
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the effect observed when an increase in the quantity of an input leads to a decline in the marginal product of that input
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fixed cost
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cost that does not depend on the quantity of output produced
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variable cost
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a cost that depends on the quantity of output produced
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total cost
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the sum of the fixed cost and variable cost
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total cost curve
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graphical representation of the total cost, showing how total cost depends on the quantity of output
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marginal cost
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change in total cost generated by one additional unit of output
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average total cost
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total cost divided by quantity of output produced, also known as average cost
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u shaped average total cost curve
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a distinctive graphical representation of the relationship between output and average total cost, the atc falls at first when output is low but rises as output increases
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average fixed cost
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fixed cost per unit of output
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average variable cost
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the variable cost per unit of output
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minimum cost output
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quantity of output at which average total cost is lowest, the bottom of the u-shaped atc curve
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long run average total cost curve
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a graphical representation showing the relationship between output and atc when fixed cost has been chosen to minimize average total cost for each level of output
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economies of scale
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long run average total cost declines as output increases
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diseconomies of scale
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long run average total cost increases as output increases
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constant returns to scale
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long run average total cost is constant as output increases
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sunk cost
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cost that has already been incurred and is nonrecoverable
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