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27 Cards in this Set
- Front
- Back
long-run total cost curve
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other things equal relationship between output and total cost in the long run
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short-run total cost curve
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other things equal relationship between output and total cost in the short run
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fixed cost
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cost associated with the fixed factors of production in the short run
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variable cost
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cost associated with the variable factors of production
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total economic cost
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for any given output, the total opportunity cost of the factors of production used in producing and selling that output
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operating expenses
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total accounting costs incurred by the firm by producing and selling its output, including the explicit monetary costs and certain nonmonetary costs
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explicit monetary (operating) costs
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the firm's out-of-pocket payments for its factors of production plus the general sales and excise taxes paid by the firm on the sale of its products
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nonmonetary operating costs
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costs of production that do no involve out-of-pocket payments for factors of production, the most important being an estimate of the depreciation of the firm's stock of capital
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depreciation
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decline in the market value of the firm's stock of capital during the year
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opportunity cost of capital
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return that the owners of the firm could earn if the value of the capital they own were invested in their next best investment alternatives
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dividends
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portion of after-tax profits that the managers of the firm pay to the stockholder's
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retained earnings
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funds of the firm remaining from total revenues after paying all operating expenses, income taxes, and dividends; used to finance future investments
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opportunity cost of labor
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wage or salary available to the employees of a firm in their next best employment alternatives
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economic profit
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difference between total revenue and total economic cost
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total cost curve
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best possible relationship between a firm's total cost and its output; indicates either the minimum total cost of producing each level of output the firm might choose to produce or the maximum output obtainable for each given amount of total cost
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firm's how problem
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goal of producing the maximum output for a given total cost spent on factor's of production; alternatively, the goal of producing a given output for the minimum total cost spent on factors of production
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production function
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relationship between a firm's outputs and its inputs that indicates the maximum output attainable from all possible combination of inputs that the firm might use
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least-cost production curve
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solution to the firm's how problem, in which the firm equalizes the ratio of marginal product to price across all factors of production
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economies of scale (in terms of long-run total cost)
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region of the long-run total cost curve along which the percentage change in total cost is less than the percentage change in output
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economies of scale (in terms of the production function)
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equal proportionate increase in all the firm's inputs by an amount k leads to a proportionate increase in the firm's output by more than k
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diseconomies of scale (in terms of long-run total cost)
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region of the long-run total cost curve along which the percentage change in total cost is greater than the percentage change in output
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diseconomies of scale (in terms of the production function)
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equal proportionate increase in all the firm's inputs by an amount k leads to a proportionate increase in firm's outputs by less than k
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constant returns to scale (in terms of long-run total cost)
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region of the long-run total cost curve along which the percentage change in total cost is equal to the percentage change in output
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constant returns to scale (in terms of the production function)
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equal proportionate increase in all the firm's inputs by an amount k leads to a proportionate increase in the firm's output equal to k
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factor indivisibility
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inability to use a fraction of a particular factor of production, as when a self-employed catering service owner has to use at least one truck
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division of labor
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process by which each task within a firm is defined narrowly and assigned to different people who perform only these specific tasks
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marketable permit (pollution)
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government-issued allowance to emit a certain amount of a pollutant that firms can buy and sell
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