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fixed costs
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any cost that does not depend on the level of the firms output. These costs are incurred even if the firm is producing nothing.
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Variable costs
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a cost that depends on the level of production chosen.
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Total Cost
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TC, fixed cost plus variable cost
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Average fix cost
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TFC/q
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spreading overhead
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the process of dividing TFC by more units of output.
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total variable cost curve
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a graph that shows the relationship between TVC and the level of firm's outputs
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marginal cost
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the increase in total cost that results from producing 1 more unit of output. reflects changes in variable cost.
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Perfect Competition
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an industry structure in which there are many firms, each small relative to the industry, producing identical products and in which no firm is large enough to have any control over the prices.
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marginal revenue
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the additional revenue that a firm takes when it increases output by one additional unit
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breaking even
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the situation in which a firm is earning exactly a normal rate of return, or a zero level of profit
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shutdown point
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the lowest point the AVC curve. when price falls below the minimum point on AVC.
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economies of scale
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an increase in a firm's scale of production leads to lower costs per unit produced
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constant returns to scale
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an increase in a firm's scale of production has no effect on costs per unit produced
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diseconomies of scale
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an increase in a firm's scale of production leads to higher costs per unit produced
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minimum efficient scale
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MES, the smallest size at which long-run average cost is at its minimum.
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optimal scale of plant
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the scale of plant that minimizes long run average
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derived demand
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the demand for resources (inputs) that is dependent on the demand for output those resources can be used to produce
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productivity of an input
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the amount of output produced per unit of that input
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Marginal product of labor
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MPL, the additional output produced by 1 additional unit of labor
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marginal revenue product
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also known as the value of marginal product (VMP), the additional revenue a firm earns by employing 1 additional unit of an input, ceteris paribus
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market labor supply curve
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the horizontal aggregation of the individual labor supply curves for workers in an area
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Demand Determined Price
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the price of a good that is fixed supply; it is determined exclusively by what households and firms are willing to pay for the good.
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pure rent
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the return to any factor of production that is in fixed supply
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technological change
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the introduction of new methods of production or new products intended to increase the productivity of existing inputs or to raise marginal products.
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Tangible capital
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material things used as inputs in the production of future goods and services.
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Social Capital
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capital that provides services to the public, examples are roads and bridges, also police and fire stations. it is owned by the public
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Intangible capital
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non-material things that contribute to the output of future goods and services
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human capital
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a form of intangible capital that includes the skills and knowledge that workers have or quire through education and training and that yields valuable services to a firm over time.
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capital stock
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for a single firm, the current market value of the firm's plant, equipment, inventories, and intangible assets
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capital market
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the market in which households supply their savings to firms that demand funds to buy capital goods.
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budget constraint
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the limits imposed on household choices by income, wealth, and product prices.
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choice set
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the set of options that is defined and limited by a budget constraint
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real income
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the set of opportunities to purchase real goods and services available to a household as determined by prices and money income
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utility
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the satisfaction a product yields
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law of diminishing marginal utility
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the more of any one good consumed in a given period, the less satisfaction (utility) generated by consuming each additional (marginal) unit of the same good.
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marginal utility
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the additional satisfaction gained by the consumption or use of one more unit of a good or service
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total utility
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the total satisfaction a product yields
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The utility maximizing rule
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equating the ratio of the marginal utility of a good to its price for all goods
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labor supply curve
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a curve that shows the quantity of labor supplied at different wage rates. its shape depends on how households react to changes in the wage rate.
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financial capital market
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the complex set of institutions in which suppliers of capital (households that save) and demand for capital (firms wanting to invest) interact.
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