econ chapter 3 Flashcards
total product =
output
marginal product
additional output produced when you change just one thing (like hire one more worker)
law of diminishing marginal returns
additional output produced from hiring an additional worker will eventually decrease
fixed costs
don’t change, no matter how many units are produced
variable costs
changes as you produce more ouput
short run
a firm has at least one fixed resource
long run
all resources are variable
economies of scale
the average cost per unit decreases when a firm increases their production capacity because they can use mass production techniques
diseconomies of scale
a firm becomes so large that increasing production capacity leads to higher average costs per unit
profit maximizing rule
firms maximize profit when marginal revenue equals marginal cost
shutdown rule
(trumps profit maximizing rule) a firm should shut down in the short run if the price is less than the average variable price
perfectly competitive market
has many small firms that can easily enter or leave the industry
price takers
individual firms are too small to influence the market and must take the market price
long-run equilibrium
all firms will earn no economic profit because there are no barriers to entry
allocative efficiency
when firms produce the amount society wants
productive efficiency
when firms produce at the lowest possible cost
