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Isoquant
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a curve that shows all the combinations of two inputs, such as capital and labor, that will produce the same level of output
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Isocost
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a curve that shows all of the input combinations that yield the same cost
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Economies of scale exist whenever long-run average costs
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Decrease as output is increased
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When there are economies of scope between two products which are separately produced by two firms, merging into a single firm can
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Accomplish a reduction in costs
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An isocost line
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Represents the combinations of K and L that cost the firm the same amount of money
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With a straight line isoquant, there is a
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Perfect substitutable relationship between all inputs
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An L-shaped isoquant
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Implies inputs are used in fixed proportions
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When output rises, AFC
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must fall.
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The marginal product of an input is defined as the change in
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Total output attributable to the last unit of an input
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Isoquants are normally drawn with a convex shape because:
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Inputs are not perfectly substitutable
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It is profitable to hire units of labor as long as the value of marginal product
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Exceeds wage
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The recipe that defines the maximum amount of output that can be produced with K units of capital and L units of labor is the:
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Production function
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Diminishing marginal returns occur when
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one input is increased and the others are held constant.
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If the price of a variable input increases, then
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the total cost curve will shift up.
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