Econ Ch 23&24

Market failure

a situation in which an unrestrained market operation leads to either too few or too many resources going to a specific economic activity

Diseconomies of scale

increases in long-run average costs that occur as output increases.

Constant returns to scale

no change in long-run average costs when output increases.

Price taker

A competitive firm that must take the price of its product as given because the firm cannot influence its price

Perfectly competitive firm

A firm that is such a small part of the total industry that it cannot affect the price of the product it sells.

Perfect competition

A market structure in which the decisions of individual buyers and sellers have no effect on market price

Long-run industry supply curve

A market supply curve showing the relationship between prices and quantities after firms have been allowed the time to enter into or exit from an industry, depending on wether there have been positive or negative economic profits.

Marginal cost pricing

A system of pricing in which the price charged is equal to the opportunity cost to society of producing one more unit of the good or service in question. The opportunity cost is the marginal cost to society.

Increasing-cost industry

An industry in which an increase in industry output is accompanied by an increase in long-run per-unit costs, such that the long-run industry supply curve slopes upward.

Decreasing cost industry

An industry in which an increase in output leads to a reduction in long-run per-unit costs, such that the long-run industry supply curve slopes downward.

Constant-cost industry

An industry whose total output can be increased without an increase in long-run per-unit costs; its long-run supply curve is horizontal.

Signals

Compact ways of conveying to economic decision makers information needed to make decisions.

Fixed Costs

Costs that do not vary with the quantity of output produced

Variable costs

Costs that vary with the rate of production. They include wages paid to workers and purchases of material

Economies of scale

Decreases in long-run average costs resulting from increases in output

Marginal cost

The change in total costs due to a one-unit change in production rate

Marginal Revenue

The change in total revenues resulting from a change in output (and sale) of one unit of the product in question

Long-run average cost curve

The locus of points representing the minimum unit cost of producing any given rate of output, given current technology and resource prices.

Planning Curve

The long-run average cost curve

Minimum efficient scale

The lowest rate of output per unit time at which long-run average costs for a particular firm are minimum

Law of diminishing marginal product

The observation that after some point, successive equal-sized increases in a variable factor of production, such as labor, added to fixed factors of production will result in smaller increases in output.

Marginal physical product

The physical output that is due to the addition of one more unit of a variable factor of production; the change in total product occurring when a variable input is increased and all other inputs are held constant; also called marginal product.

Plant size

The physical size of the factories that a firm owns and operates to produce its output. Plant size can be defined by square footage, maximum physical capacity, and other physical measures.

Short-run break-even price

The price at which a firm's total revenues equal its total costs. At the break-even price, the firm is just making a normal rate of return on its capital investment. (It is covering its explicit and implicit costs.)

Total revenue

The price per unit times the total quantity sold.

Short-run shutdown price

The price that covers average variable costs. It occurs just below the intersection of the marginal cost curve and the average variable cost curve.

Profit-maximizing rate of production

The rate of production that maximizes total profits, or the difference between total revenues and total costs; also, the rate of production at which marginal revenue equals marginal cost.

Production function

The relationship between inputs and maximum physical output. It is a technological, not economic, relationship

Total costs

The sum of total fixed costs and variable costs

Long run

The time period during which all factor of production can be varied

Short run

The time period in which at least one input, such as plant size, cannot be changed

Average total costs

Total costs divided by the number of units produced; sometimes called average per-unit total costs.

Average physical product

Total product divided by the variable input.

Industry supply curve

the locus of points showing the minimum prices at which given quantities will be forthcoming; also called the market supply curve

Planning horizon

the long run, during which all inputs are variable.

Average variable costs

total variable costs divided by the number of units produced.

Average fixed costs

total fixed costs divided by quantity produced