AP Microeconomics Unit 3

a cost that involves actually laying out money.

a cost that does not require an outlay of money; it is measured by the value, in dollar terms, of benefits that are foregone.

a business’s total revenue minus the explicit cost and depreciation

a business’s total revenue minus the opportunity cost of its resources; usually less than the accounting profit.

an economic profit equal to zero; an economic profit just high enough to keep a firm engaged in its current activity.

the study of the costs and benefits of doing a little bit more of an activity versus a little bit less.

the change in total revenue generated by an additional unit of output; curve shows how it varies as output changes

the relationship between the quantity of inputs a firm uses and the quantity of output it produces.

a cost that does not depend on the quantity of output produced; the cost of the fixed input.

a cost that depends on the quantity of output produced; the cost of the variable input.

the time period in which all inputs can be varied.

the time period in which at least one input is fixed.

the additional quantity of output produced by using one more unit of an input.

law that states that an increase in the quantity of an input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input.

the sum of the fixed cost and the variable cost of producing a given quantity of output; curve shows how it changes with quantity of output

total cost divided by quantity of output produced; also known as average cost; curve shows how it changes with quantity of output

the fixed cost per unit of output; curve shows how it changes with quantity of output

the variable cost per unit of output; curve shows how it changes with output

the quantity of output at which average total cost is lowest; corresponds to the bottom of the U-shaped average total cost curve.

the total product divided by the quantity of an input; curve shows the relationship between it and the quantity of an input.

average total cost when fixed cost has been chosen to minimize average total cost for each level of output; curve shows the relationship between output and average total cost

when long-run average total cost declines as output increases.

when output increases more than in proportion to an increase in all inputs; for example, doubling all inputs would cause output to more than double.

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

when output increases less than in proportion to an increase in all inputs.

when output increases directly in proportion to an increase in all inputs.

When somebody has no effect on the market price of the good or service they buy/sell

a market in which all market participants are price takers.

describes a good produced by different firms, but that consumers regard as the same good; also known as a commodity.

when new firms can easily enter into an industry and existing firms can easily leave that industry.

an industry controlled by a monopolist, the only producer of a good that has no close substitutes.

protects a monopolist (and allows it to persist and earn economic profits) by preventing other firms from entering the industry.

when economies of scale provide a large cost advantage to a single firm that produces all of an industry’s output.

an industry with only a small number of firms.

industry in which no one firm has a monopoly, but producers nonetheless realize that they can affect market prices.

market structure in which there are many competing firms in an industry, each firm sells a differentiated product, and there is free entry into and exit from the industry in the long run.

the market price at which a price-taking firm earns zero profit; the minimum average total cost of such a firm.

the price at which a firm ceases production in the short run; equal to minimum average variable cost.

curve that shows how an individual firm’s profit-maximizing level of output depends on the market price, taking the fixed cost as given.

curve that shows the relationship between the price of a good and the total output of the industry as a whole; also known as market supply curve.

when the quantity supplied equals the quantity demanded and the number of firms in the market is fixed.

shows how the quantity supplied responds to the price once producers have had time to enter or exit the industry.

achieved by an economy if it produces at the point along its production possibilities curve that makes consumers as well off as possible.

achieved by an economy if it produces at a point on its production possibilities curve.

an industry with a horizontal (perfectly elastic) long-run supply curve; the firms’ cost curves are unaffected by changes in the size of the industry

an industry with an upward-sloping long-run supply curve; the firms’ production costs increase with the size of the industry.

an industry with a downward-sloping long-run supply curve; the firms’ production costs decrease as the industry grows.