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Production Function
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the relationship between the quantity of inputs a firm uses and the quantity of output it produces
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Fixed Input
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an input whose quantity is fixed for a period of time and cannot be varied
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Variable Input
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an input whose quantity the firm can vary at any given time
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Long Run
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the time period in which all inputs can be varied
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Short Run
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the time period in which at least one input is fixed
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Total Product Curve
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shoes how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input
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Marginal Product
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the additional quantity of output that is produced by using one more unit of that input
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Diminishing Returns to an Input
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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
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Fixed Cost
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a cost that does not depends on the quantity of output produced (the cost of a fixed input)
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Variable Cost
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a cost that depends on the quantity of output produced (the cost of the variable input)
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Total Cost
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cost of producing a given output is the sum of the fixed cost and the variable cost of producing that quantity of output
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Total Cost Curve
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Shows how total cost depends on the quantity of output
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Average Total Cost
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total cost divided by quantity of output produced
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U-Shaped Average Total Cost Curve
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a curve that falls at low levels of output, then rises at higher levels
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Average Fixed Cost
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the fixed cost per unit of output
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Average Variable Cost
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the variable cost per unit of output
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Minimum-Cost Output
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the quantity of output at which average total cost is lowest (bottom of the U-shaped average curve)
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Long-Run Average Total Cost Curve
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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
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Increasing Returns to Scale
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when long-run average total cost declines as output increases
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Decreasing Returns to Scale
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when long-run average total cost increases as output increases
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Constant Returns to Scale
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when long-run average total cost is constant as output increases
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Price-Taking Producer
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a producer whose actions have no effect on the market price of the good or service it sells
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Price-Taking Consumer
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a consumer whose actions have no effect on the market price of the good or service he or she buys
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Perfectly Competitive Market
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a market in which all market participants are price-takers
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Perfectly Competitive Industry
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an industry in which producers are price-takers
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Market Share
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the fraction of the total industry output accounted for by that producer's output
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Standardized Product (Commodity)
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when consumers regard the products of different producers as the same good
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Free Entry and Exit
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when new producers can easily enter into an industry and existing producers can easily leave that industry
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Monopolist
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the only producer of a good that has no cost substitutes
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Monopoly
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industry that is controlled by a monopolist
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Market Power
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the ability of a firm to raise prices
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Barrier to Entry
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something that monopolist must have; to prevent other firms from entering the industry
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Natural Monopoly
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when economies of scale provide a large cost advantage to a single firm that produces all of an industry's output
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Network Externality
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when the value of a good or service to an individual is greater when many other people use the same good or service
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Patent
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gives the inventor a temporary monopoly in the use or sale of an invention
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Copyright
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gives the creator of a literary of artistic work the sole right to profit from that work
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Oligopoly
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an industry with only a small number of firms
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Oligopolist
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a producer in an oligopoly
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Imperfect Competition
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when no one firm has a monopoly, but producers nonetheless realize that they can affect market prices
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Collusion
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when sellers cooperate to raise their joint profits
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Herfindal-Hirschman Index (HHI)
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the square of each firm's share of market sales summed over the industry. Giving a picture of the industry market structure
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Monopolistic Competition
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a 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
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