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long-run average cost curve
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a curve that indicates the lowest average cost of production at each rate of output when the size, or scale, of the firm varies; also called the planning curve
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economies of scale
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forces that reduce a firm's average cost as the scale of operation increases in the long run
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diseconomies of scale
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forces that may eventually increase a firm's average cost as the scale of operation increases in the long run
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Constant Long-Run Average Cost
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a cost that occurs when, over some range of output, long run average cost neither increases nor decreases with changes in firm size
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production function
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identifies the maximum quantities of a particular good or service that can be produced per time period with various combinations of resources, for a given level of technology
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isoquant curve
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A curve that shows all the technologically efficient combinations of two resources, such as labor and capital, that produce a certain rate of output.
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Marginal Rate of Technical Substitution
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the rate at which labor substitutes for capital without affecting output
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isocost line
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identifies all combinations of capital and labor the firm can hire for a given total cost
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Expansion Path
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the line formed by connecting tangency points
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market structure
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important features of a market, such as the number of firms, product uniformity across firms, firms' ease of entry and exit, and forms of competition
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perfect competition
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a market structure with many fully informed buyers and sellers of a standardized product and no obstacles to entry or exit of firms in the long run
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commodity
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a standardized product, a product that does not differ across producers, such as bushels of wheat or an ounce of gold
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price taker
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a firm that faces a given market price and whose quantity supplied has no effect on that price; a perfectly competitive firm
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marginal revenue
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the change in total revenue from an additional unit sold; in perfect competition.
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Golden Rule of Profit Maximization
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to maximize profit or minimize loss, a firm should produce the quantity at which marginal revenue equals marginal cost; this rule holds for all market structures
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average revenue
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total revenue divided by output, or AR=TR/q; in all market structures
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Short-Run Firm Supply Curve
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a curve that shows the quantity a firm supplies at each price in the short run; in perfect competition, that portion of a firm's marginal cost curve that intersects and rises above the low point on its average variable cost curve
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short-run industry supply curve
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a curve that indicates the quantity supplied by the industry at each price in the short run; in perfect competition, the horizontal sum of each firm's short-run supply curve
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long-run industry supply curve
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a curve that shows the relationship between price and quantity supplied by the industry once firms adjust fully to any change in market demand
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