AP Micro Unit 3 Vocabulary - Assignment Essays

question

accounting profit

answer

a business's total revenue minus the explicit cost and depreciation

question

economic profit

answer

a business's total revenue minus the opportunity cost of its resources; usually less than the accounting profit

question

explicit cost

answer

a cost that involves actually laying out money

question

implicit cost

answer

a cost that does not require an outlay of money; it is measured by the value, in dollar terms, of benefits that are foregone

question

implicit cost of capital

answer

the opportunity cost of the capital used by a business: the income the owner could have realized from that capital if it had been used in its next best alternative way

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

says that 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 curve

answer

shows how marginal revenue varies as output varies

question

marginal revenue

answer

the change in total revenue generated by an additional unit of output

question

marginal cost curve

answer

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

question

principle of marginal analysis

answer

says that every activity should continue until marginal benefit equals marginal cost

question

production function

answer

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

question

short run

answer

the time period in which at least one input is fixed

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

long run

answer

the time period in which all inputs can be varied

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 additional quantity of output produced by using one more unit of an input

question

diminishing returns to an input

answer

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

question

total cost (TC)

answer

the sum of the fixed cost and the variable cost of producing a given quantity of output

question

total cost curve

answer

shows how total cost depends on the quantity of output

question

fixed cost (FC)

answer

a cost that does not depend on the quantity of output produced; the cost of the fixed input

question

variable cost (VC)

answer

a cost that depends on the quantity of output produced; the cost of the variable input

question

average total cost/average cost (ATC)

answer

total cost divided by quantity of output produced; also known as average cost

question

U-shaped average total cost curve

answer

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

question

average fixed cost (AFC)

answer

the fixed cost per unit of output

question

average variable cost (AVC)

answer

the variable cost per unit of output

question

minimum-cost output

answer

the quantity of output at which average total cost is lowest; corresponds to the bottom of the U-shaped average total cost curve

question

average product

answer

the total product divided by the quantity of an input

question

average product curve

answer

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

question

long-run average total cost curve (LRATC)

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

minimum efficient scale

answer

the smallest quantity at which a firm's long-run average total costs is minimized

question

economies of scale

answer

when long-run average total cost declines as output increases

question

diseconomies of scale

answer

when long-run average total cost increases as output increases

question

increasing returns to scale

answer

when output increases more than in proportion to an increase in all inputs; for example, doubling all inputs would cause output to more than double

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

sunk cost

answer

a cost that has already been incurred and is nonrecoverable; should be ignored in a decision about future actions

question

perfectly competitive market

answer

a market in which all market participants are price takers

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 industry

answer

an industry in which firms are price takers

question

market share

answer

the fraction of the total industry output accounted for by a given firm's output.

question

standardized product/commodity

answer

describes a good produced by different firms, but that consumers regard as the same good; also known as a commodity

question

free entry and exit

answer

when new firms can easily enter into an industry and existing firms can easily leave that industry

question

monopolist

answer

the only producer of a good that has no close substitutes

question

monopoly

answer

an industry controlled by a monopolist

question

barrier to entry

answer

protects a monopolist (and allows it to persist and earn economic profits) by preventing other firms from entering the industry

question

natural monopoly

answer

when economies of scale provide a large cost advantage to a single firm that produces all of an industry's output

question

patent

answer

gives an inventor a temporary monopoly in the use or sale of an invention

question

answer

gives the copyright holder for a literary or artistic work the sole right to profit from that work for a specified period of time

question

oligopoly

answer

an industry with only a small number of firms

question

oligopolist

answer

a producer in an oligopoly

question

imperfect competition

answer

industry in which no one firm has a monopoly, but producers nonetheless realize that they can affect market prices

question

monopolistic competition

answer

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

question

concentration ratios

answer

measure of the percentage of industry sales accounted for by the "X" largest firms; for example, the four-firm concentration ratio or the eight-firm concentration ratio

question

Herfindahl-Hirschman Index (HHI)

answer

the square of each firm's share of market sales summed over the industry; gives a picture of the industry market structure

question

price-taking firm's optimal output rule

answer

says that a price-taking firm's profit is maximized by producing the quantity of output at which the market price is equal to the marginal cost of the last unit produced

question

break-even price

answer

the market price at which a price-taking firm earns zero profit; the minimum average total cost of such a firm

question

shut-down price

answer

the price at which a firm ceases production in the short run; 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

industry supply curve

answer

shows the relationship between the price of a good and the total output of the industry as a whole; also known as market supply curve

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 firms

question

long-run industry supply curve

answer

shows how the quantity supplied responds to the price once producers have had time to enter or exit the industry

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

an industry with a horizontal (perfectly elastic) long-run supply curve; the firms' cost curves are unaffected by changes in the size of the industry

question

increasing-cost industry

answer

an industry with an upward-sloping long run supply curve; the firms' production costs increase with the size of the industry

question

decreasing-cost industry

answer

an industry with a downward-sloping long-run supply curve; the firms' production costs decrease as the industry grows

question

depreciation

answer

reduction in value

1 of 69

question

accounting profit

answer

a business's total revenue minus the explicit cost and depreciation

question

economic profit

answer

a business's total revenue minus the opportunity cost of its resources; usually less than the accounting profit

question

explicit cost

answer

a cost that involves actually laying out money

question

implicit cost

answer

a cost that does not require an outlay of money; it is measured by the value, in dollar terms, of benefits that are foregone

question

implicit cost of capital

answer

the opportunity cost of the capital used by a business: the income the owner could have realized from that capital if it had been used in its next best alternative way

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

says that 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 curve

answer

shows how marginal revenue varies as output varies

question

marginal revenue

answer

the change in total revenue generated by an additional unit of output

question

marginal cost curve

answer

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

question

principle of marginal analysis

answer

says that every activity should continue until marginal benefit equals marginal cost

question

production function

answer

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

question

short run

answer

the time period in which at least one input is fixed

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

long run

answer

the time period in which all inputs can be varied

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 additional quantity of output produced by using one more unit of an input

question

diminishing returns to an input

answer

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

question

total cost (TC)

answer

the sum of the fixed cost and the variable cost of producing a given quantity of output

question

total cost curve

answer

shows how total cost depends on the quantity of output

question

fixed cost (FC)

answer

a cost that does not depend on the quantity of output produced; the cost of the fixed input

question

variable cost (VC)

answer

a cost that depends on the quantity of output produced; the cost of the variable input

question

average total cost/average cost (ATC)

answer

total cost divided by quantity of output produced; also known as average cost

question

U-shaped average total cost curve

answer

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

question

average fixed cost (AFC)

answer

the fixed cost per unit of output

question

average variable cost (AVC)

answer

the variable cost per unit of output

question

minimum-cost output

answer

the quantity of output at which average total cost is lowest; corresponds to the bottom of the U-shaped average total cost curve

question

average product

answer

the total product divided by the quantity of an input

question

average product curve

answer

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

question

long-run average total cost curve (LRATC)

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

minimum efficient scale

answer

the smallest quantity at which a firm's long-run average total costs is minimized

question

economies of scale

answer

when long-run average total cost declines as output increases

question

diseconomies of scale

answer

when long-run average total cost increases as output increases

question

increasing returns to scale

answer

when output increases more than in proportion to an increase in all inputs; for example, doubling all inputs would cause output to more than double

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

sunk cost

answer

a cost that has already been incurred and is nonrecoverable; should be ignored in a decision about future actions

question

perfectly competitive market

answer

a market in which all market participants are price takers

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 industry

answer

an industry in which firms are price takers

question

market share

answer

the fraction of the total industry output accounted for by a given firm's output.

question

standardized product/commodity

answer

describes a good produced by different firms, but that consumers regard as the same good; also known as a commodity

question

free entry and exit

answer

when new firms can easily enter into an industry and existing firms can easily leave that industry

question

monopolist

answer

the only producer of a good that has no close substitutes

question

monopoly

answer

an industry controlled by a monopolist

question

barrier to entry

answer

protects a monopolist (and allows it to persist and earn economic profits) by preventing other firms from entering the industry

question

natural monopoly

answer

when economies of scale provide a large cost advantage to a single firm that produces all of an industry's output

question

patent

answer

gives an inventor a temporary monopoly in the use or sale of an invention

question

answer

gives the copyright holder for a literary or artistic work the sole right to profit from that work for a specified period of time

question

oligopoly

answer

an industry with only a small number of firms

question

oligopolist

answer

a producer in an oligopoly

question

imperfect competition

answer

industry in which no one firm has a monopoly, but producers nonetheless realize that they can affect market prices

question

monopolistic competition

answer

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

question

concentration ratios

answer

measure of the percentage of industry sales accounted for by the "X" largest firms; for example, the four-firm concentration ratio or the eight-firm concentration ratio

question

Herfindahl-Hirschman Index (HHI)

answer

the square of each firm's share of market sales summed over the industry; gives a picture of the industry market structure

question

price-taking firm's optimal output rule

answer

says that a price-taking firm's profit is maximized by producing the quantity of output at which the market price is equal to the marginal cost of the last unit produced

question

break-even price

answer

the market price at which a price-taking firm earns zero profit; the minimum average total cost of such a firm

question

shut-down price

answer

the price at which a firm ceases production in the short run; 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

industry supply curve

answer

shows the relationship between the price of a good and the total output of the industry as a whole; also known as market supply curve

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 firms

question

long-run industry supply curve

answer

shows how the quantity supplied responds to the price once producers have had time to enter or exit the industry

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

an industry with a horizontal (perfectly elastic) long-run supply curve; the firms' cost curves are unaffected by changes in the size of the industry

question

increasing-cost industry

answer

an industry with an upward-sloping long run supply curve; the firms' production costs increase with the size of the industry

question

decreasing-cost industry

answer

an industry with a downward-sloping long-run supply curve; the firms' production costs decrease as the industry grows

question

depreciation

answer

reduction in value

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