AP Micro Unit 4 Terms - Custom Scholars
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# AP Micro Unit 4 Terms

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Production Function

shows the relationship between a firms variable inputs and its outputs

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Variable Inputs

can be increased to increased production

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Fixed Inputs

cannot be increased to increase production

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Short Run

at least one input is fixed. the time period that is too brief for a firm to alter its plant size (capital is fixed)

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Long Run

all inputs may be variable. a period that is long enough for a firm to vary all inputs, including capital

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Total Product (TP or Q)

the total output produced by the firm

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Marginal Product (MP)

The additional output produced by hiring one more unit of input

-MPL = changeTP/changeL

-MPC = changeTP/changeC

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Average Product (AP)

the total product divided by the total number of inputs

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Diminishing Returns to an Input

as more and more of a variable input is added to a fixed input, at some point, the additional output produced will decline

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Fixed Cost (FC)
costs whose total does not vary with changes in output. these are payments to the fixed outputs in the production function
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Variable Cost (VC)

costs that change with the level of output these are the payments to the variable inputs in the production function

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Total Cost (TC)

the sum of the total fixed and variable costs at each level of output

-TC= FC+VC

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Total Cost Curve

shows how total cost depends on quantity of output

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Marginal Cost (MC)

the additional cost of producing one more unit of output

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Average Total Cost

the total cost divided by the level of output

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U-shaped average total cost curve
falls at low levels of output, then rises at higher levels
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Average Fixed Cost (AFC)

the fixed cost per unit of output

-FC/Q

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Average Variable Cost (AVC)

the variable cost per unit of output

-VC/Q

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minimum-cost output
the quantity of output at which the average total cost is lowest—the bottom of the U-shaped average total cost curve.
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long-run average cost curve
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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economies of scale
when long-run average total cost declines as output increases
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increasing returns to scale
when output increases more than in proportion to an increase in all inputs
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minimum efficient scale

the smallest quantity at which a firm's long-run average total cost is minimized

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diseconomies of scale

when long-run average total cost increases as output increases
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decreasing returns to scale

when output increases less than in proportion to an increase in all inputs
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constant returns to scale
when output increases directly in proportion to an increase in all inputs
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sunk cost

a cost that has been incurred in the past and cannot be recovered

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cost-minimization rule

employ factors so that the marginal product per dollar spent on each factor is the same
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question

Production Function

shows the relationship between a firms variable inputs and its outputs

question

Variable Inputs

can be increased to increased production

question

Fixed Inputs

cannot be increased to increase production

question
Short Run

at least one input is fixed. the time period that is too brief for a firm to alter its plant size (capital is fixed)

question
Long Run

all inputs may be variable. a period that is long enough for a firm to vary all inputs, including capital

question
Total Product (TP or Q)

the total output produced by the firm

question
Marginal Product (MP)

The additional output produced by hiring one more unit of input

-MPL = changeTP/changeL

-MPC = changeTP/changeC

question
Average Product (AP)

the total product divided by the total number of inputs

question

Diminishing Returns to an Input

as more and more of a variable input is added to a fixed input, at some point, the additional output produced will decline

question
Fixed Cost (FC)
costs whose total does not vary with changes in output. these are payments to the fixed outputs in the production function
question
Variable Cost (VC)

costs that change with the level of output these are the payments to the variable inputs in the production function

question
Total Cost (TC)

the sum of the total fixed and variable costs at each level of output

-TC= FC+VC

question

Total Cost Curve

shows how total cost depends on quantity of output

question
Marginal Cost (MC)

the additional cost of producing one more unit of output

question

Average Total Cost

the total cost divided by the level of output

question
U-shaped average total cost curve
falls at low levels of output, then rises at higher levels
question
Average Fixed Cost (AFC)

the fixed cost per unit of output

-FC/Q

question
Average Variable Cost (AVC)

the variable cost per unit of output

-VC/Q

question
minimum-cost output
the quantity of output at which the average total cost is lowest—the bottom of the U-shaped average total cost curve.
question
long-run average cost curve
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
question
economies of scale
when long-run average total cost declines as output increases
question
increasing returns to scale
when output increases more than in proportion to an increase in all inputs
question

minimum efficient scale

the smallest quantity at which a firm's long-run average total cost is minimized

question

diseconomies of scale

when long-run average total cost increases as output increases
question

decreasing returns to scale

when output increases less than in proportion to an increase in all inputs
question
constant returns to scale
when output increases directly in proportion to an increase in all inputs
question
sunk cost

a cost that has been incurred in the past and cannot be recovered

question

cost-minimization rule

employ factors so that the marginal product per dollar spent on each factor is the same

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