Unit 3 Flashcards
Front (Question)
Back (Answer)
What is marginal product?
The additional output generated by employing one more unit of input.
What is diminishing marginal returns?
When adding an additional factor of production results in smaller increases in output.
What are fixed costs?
Costs that do not vary with the quantity of output produced.
What are variable costs?
Costs that vary with the quantity of output produced.
What is the formula for average total cost (ATC)?
ATC = Total Cost / Quantity
What is marginal cost (MC)?
The cost of producing one more unit of a good.
At what point does marginal cost intersect average total cost?
At the minimum point of the ATC curve.
What is perfect competition?
A market structure with many firms, identical products, and easy entry and exit.
In perfect competition, what does price equal?
Price = Marginal Revenue = Marginal Cost at profit-maximizing output.
What happens in the long run to profits in perfect competition?
Economic profits become zero due to free entry and exit.
What is the shutdown rule?
A firm should shut down if price falls below AVC (average variable cost).
What is economies of scale?
When long-run average total cost falls as quantity increases.
What is diseconomies of scale?
When long-run average total cost rises as quantity increases.
What is constant returns to scale?
When long-run average total cost stays the same as quantity increases.
What is the difference between accounting profit and economic profit?
Economic profit accounts for implicit costs, while accounting profit does not.
