econ/ Chapter 7
Terms
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- optimal method of production
- the production method that minimizes cost
- law of diminishing return
- when additonal units of a variable input are added to fixed inputs after a certain point, the marginal product of the variable input declines.
- labor-intensive technology
- technology that relies heavily on human labor instead of capital
- long run
- That period of time for which there are no fixed factors of production; firms can increase or decrease the scale of operation, and new firms can enter and existing firms can exit the industry.
- capital-intensive technology
- technology that relies heavily on capital instead of human labor
- perfect competition
- an industry structure in which there are many firms, each small relative to the industry, producing virtually identical products and in which no firm is large enough to have an y control over price. In perfectly competitive industries, new competitors can freely enter and exit the market.
- marginal product
- The additional output that can be produced by adding one more unit of a specific input, ceteris paribus.
- production function or total product function
- A numerical or mathematical expression of a relationship between inputs and outputs. It shows units of total product as a function of units of inputs.
- average product
- the average amount produced by each unit of a variable factor of production
- total revenue
- the amount received from the sale of the product (q x P).
- production technology
- The quantitative relationship between inputs and outputs.
- total cost (total economic cost)
- The total of (1) out-of-pocket costs, (2) normal rate of return on capital, and (3) opportunity cost of each factor of production.
- homogeneous products
- Undifferentiated product; products that are identical to, or indistinguishable form, one another.
- profit(economic profit)
- the difference between total revenue and total cost
- firm
- An organization that comes into being when a person or a group of people decides to produce a good or service to meet a perceived demand. Most firms exist to make a profit.
- short run
- The period of time for which two conditions hold; the firm is operating under a fixed scale (fixed factor) of production, and firms can neither enter nor exit an industry
- production
- The process by which inputs are combined, transformed, and turned into outputs.
- normal rate of return
- A rate of return on capital that is just sufficient to keep owners and investors satisfied. For relatively risk-free firms, it should be nearly the same as the interest rate on risk-free government bonds.