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production function
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A function that defines the maximum amount of output that can be produced with a given set of inputs.
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Marginal rate of technical substitution
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The marginal rate of technical substitution of input X for input Y is the rate at which the firm can decrease Y for a small increase in X while keeping output the same
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Increasing returns to scale
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A production function has increasing returns to scale of increasing all inputs by a fixed percentage increases output by more than that percentage
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labor-saving technological progress
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A change in production function that makes the firm more productive and increases the marginal product of capital relative to the marginal product of labor
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Economic cost
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The full opportunity cost of making a decision or producing output including both implicit and explicit cost
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Cost minimization problem
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the problem of finding the input combination that produces a given amount of output at the lowest possible cost, given a fixed production function and fixed input prices
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Total Cost Function
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Function that shows how the cost of production varies with the quantity of output
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Economies of scale
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A firm has economies of scale of average costs decrease as output increases
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Short run
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A period of time in which the level of at least one of the firms input cannot be changed
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Monopoly
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A market in which there is only one seller
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Monopsony
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Market with only one buyer
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Barrier to entry
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A factor that allows a firm to enjoy monopoly power while preventing rivals from profitably entering the market
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first degree price discrimination
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Pricing each unit of a good sold to each consumer at exactly that consumers maximum willingness to pay
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second degree price discrimination
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Changing different prices per unit of a good depending on how much a consumer has already purchased
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third degree price discrimination
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Changing different prices to people with different consumers groups or segments in a market
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