AP Micro Unit 3: Production, Cost and the Perfect Competition Model

question

Profit

answer

total revenue minus total cost

question

total revenue

answer

Price x Quantity

question

explicit costs

answer

costs that require paying of money

question

implicit costs

answer

does not require the paying of money; it is measured by the value, in dollar terms, of benefits that are given up, or the opportunity costs

question

accounting profit

answer

the business's total revenue minus the explicit cost

question

economic profit

answer

total revenue minus total cost, including both explicit and implicit costs

question

normal profit

answer

an economic profit equal to zero; an economic profit just high enough to keep a firm engaged in its current activity

question

optimal output rule

answer

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

question

marginal revenue

answer

The change in total revenue generated by an additional unit of output.

question

optimal output rule

answer

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

question

marginal cost curve

answer

shows how the cost of producing one more unit depends on the quantity that has already been produced

question

production function

answer

the relationship between the quantity of inputs a firm uses and the quantity of output it produces

question

fixed input

answer

an input whose quantity is fixed for a period of time and cannot be varied

question

variable input

answer

An input whose quantity the firm can vary at any time.

question

Fixed Cost (FC)

answer

a cost that does not depend on the quantity of output produced. It's the cost of the fixed inputs.

question

Variable Costs (VC)

answer

Costs that depends on the quantity of output produced. It's the cost of the variable inputs.

question

Total Cost (TC)

answer

total fixed costs plus total variable costs

question

long run

answer

the time period in which all inputs can be varied

question

short run

answer

the period of time during which at least one of a firm's inputs is fixed

question

total product curve

answer

shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input

question

marginal product

answer

the increase in output that arises from an additional unit of input

question

diminishing returns to an input

answer

when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input

question

total cost curve

answer

shows how total cost depends on the quantity of output

question

Average Total Cost (ATC)

answer

total costs divided by quantity of output

question

U-shaped average total cost curve

answer

falls at low levels of output, then rises at higher levels

question

Average Fixed Cost (AFC)

answer

total fixed costs divided by quantity of output

question

Average Variable Cost (AVC)

answer

variable cost divided by the quantity of output

question

minimum-cost output

answer

the quantity of output at which the average total cost is lowest—the bottom of the U-shaped average total cost curve.

question

average product

answer

Total product divided by the quantity of the input.

question

Average product curve

answer

shows the relationship between the average product and the quantity of the input

question

long-run average total cost curve

answer

shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output

question

economies of scale

answer

when long-run average total cost declines as output increases

question

increasing returns to scale

answer

when output increases more than in proportion to an increase in all inputs

question

minimum efficient scale

answer

Smallest quantity at which a firm's long-run average total cost is minimized.

question

diseconomies of scale

answer

when long-run average total cost increases as output increases

question

Decreasing returns to scale

answer

when output increases less than in proportion to an increase in all inputs

question

constant returns to scale

answer

when output increases directly in proportion to an increase in all inputs

question

price-taking firm

answer

a firm whose actions have no effect on the market price of the good or service it sells

question

price-taking consumer

answer

a consumer whose actions have no effect on the market price of the good or service he or she buys

question

perfectly competitive market

answer

a market in which all market participants are price-takers

question

perfectly competitive industry

answer

an industry in which firms are price-takers

question

standardized product (commodity)

answer

when consumers regard the products of different firms as the same good

question

free entry and exit

answer

when new firms can easily enter into the industry and existing firms can easily leave the industry

question

break-even point

answer

Of a price-taking firm is in the market price at which it earns zero profit.

question

shut-down price

answer

when a firm ceases production in the short run if the market price falls below this price; equal to minimum average variable cost

question

Short-Run Firm Supply Curve

answer

Shows how an individual firm's profit-maximizing level of output depends on the market price, taking the fixed cost as given.

question

short-run industry supply curve

answer

shows how the quantity supplied by an industry depends on the market price given a fixed number of producers

question

long-run market equilibrium

answer

when the quantity supplied equals the quantity demanded, given that sufficient time has elapsed for entry into and exit from the industry to occur

question

constant cost industry

answer

Firms' cost curves are unaffected by changes in the size of the industry and the long-run industry supply curve is horizontal (perfectly elastic)

question

increasing cost industry

answer

Firms' production costs increase with the size of the industry and the long-run industry supply curve is upward-sloping.

question

decreasing cost industry

answer

Firms' production costs decrease as the industry grows and the long-run supply curve is downward sloping.

1 of 51

question

Profit

answer

total revenue minus total cost

question

total revenue

answer

Price x Quantity

question

explicit costs

answer

costs that require paying of money

question

implicit costs

answer

does not require the paying of money; it is measured by the value, in dollar terms, of benefits that are given up, or the opportunity costs

question

accounting profit

answer

the business's total revenue minus the explicit cost

question

economic profit

answer

total revenue minus total cost, including both explicit and implicit costs

question

normal profit

answer

an economic profit equal to zero; an economic profit just high enough to keep a firm engaged in its current activity

question

optimal output rule

answer

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

question

marginal revenue

answer

The change in total revenue generated by an additional unit of output.

question

optimal output rule

answer

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

question

marginal cost curve

answer

shows how the cost of producing one more unit depends on the quantity that has already been produced

question

production function

answer

the relationship between the quantity of inputs a firm uses and the quantity of output it produces

question

fixed input

answer

an input whose quantity is fixed for a period of time and cannot be varied

question

variable input

answer

An input whose quantity the firm can vary at any time.

question

Fixed Cost (FC)

answer

a cost that does not depend on the quantity of output produced. It's the cost of the fixed inputs.

question

Variable Costs (VC)

answer

Costs that depends on the quantity of output produced. It's the cost of the variable inputs.

question

Total Cost (TC)

answer

total fixed costs plus total variable costs

question

long run

answer

the time period in which all inputs can be varied

question

short run

answer

the period of time during which at least one of a firm's inputs is fixed

question

total product curve

answer

shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input

question

marginal product

answer

the increase in output that arises from an additional unit of input

question

diminishing returns to an input

answer

when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input

question

total cost curve

answer

shows how total cost depends on the quantity of output

question

Average Total Cost (ATC)

answer

total costs divided by quantity of output

question

U-shaped average total cost curve

answer

falls at low levels of output, then rises at higher levels

question

Average Fixed Cost (AFC)

answer

total fixed costs divided by quantity of output

question

Average Variable Cost (AVC)

answer

variable cost divided by the quantity of output

question

minimum-cost output

answer

the quantity of output at which the average total cost is lowest—the bottom of the U-shaped average total cost curve.

question

average product

answer

Total product divided by the quantity of the input.

question

Average product curve

answer

shows the relationship between the average product and the quantity of the input

question

long-run average total cost curve

answer

shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output

question

economies of scale

answer

when long-run average total cost declines as output increases

question

increasing returns to scale

answer

when output increases more than in proportion to an increase in all inputs

question

minimum efficient scale

answer

Smallest quantity at which a firm's long-run average total cost is minimized.

question

diseconomies of scale

answer

when long-run average total cost increases as output increases

question

Decreasing returns to scale

answer

when output increases less than in proportion to an increase in all inputs

question

constant returns to scale

answer

when output increases directly in proportion to an increase in all inputs

question

price-taking firm

answer

a firm whose actions have no effect on the market price of the good or service it sells

question

price-taking consumer

answer

a consumer whose actions have no effect on the market price of the good or service he or she buys

question

perfectly competitive market

answer

a market in which all market participants are price-takers

question

perfectly competitive industry

answer

an industry in which firms are price-takers

question

standardized product (commodity)

answer

when consumers regard the products of different firms as the same good

question

free entry and exit

answer

when new firms can easily enter into the industry and existing firms can easily leave the industry

question

break-even point

answer

Of a price-taking firm is in the market price at which it earns zero profit.

question

shut-down price

answer

when a firm ceases production in the short run if the market price falls below this price; equal to minimum average variable cost

question

Short-Run Firm Supply Curve

answer

Shows how an individual firm's profit-maximizing level of output depends on the market price, taking the fixed cost as given.

question

short-run industry supply curve

answer

shows how the quantity supplied by an industry depends on the market price given a fixed number of producers

question

long-run market equilibrium

answer

when the quantity supplied equals the quantity demanded, given that sufficient time has elapsed for entry into and exit from the industry to occur

question

constant cost industry

answer

Firms' cost curves are unaffected by changes in the size of the industry and the long-run industry supply curve is horizontal (perfectly elastic)

question

increasing cost industry

answer

Firms' production costs increase with the size of the industry and the long-run industry supply curve is upward-sloping.

question

decreasing cost industry

answer

Firms' production costs decrease as the industry grows and the long-run supply curve is downward sloping.

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