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ECN Terms C6-9
| Question | Answer |
|---|---|
| Production Function | Relationship between inputs and outputs; q=f(K,L,M,...) |
| Firm | Any organization that turns inputs into outputs. |
| Marginal Product | Additional output that can be produced by adding one more unit of a particular input while holding all other inputs constant. |
| Isoquant Map | Contour map of a firm's production function. |
| Isoquant | A curve that shows the various combinations of inputs that will produce the same amount of output. |
| Marginal Rate of Technical Substitution (RTS) | Amount by which one input can be reduced when one more unit of another input is added while holding output constant. Negative slope of an isoquant. |
| Returns to Scale | The rate at which output increases in response to proportional increases in all inputs. |
| Fixed-Proportions Production Function | A production function in which the inputs must be used in a fixed ratio to one another. |
| Technical Progress | A shift in the production function that allows a given output level to be produced using fewer inputs. |
| Opportunity Cost | The cost of a good as measured by the alternative uses that are forgone by producing the good. |
| Accounting Cost | Concept that inputs cost what was paid for them. |
| Economic Cost | Amount required to keep an input in its present use; the amount that it would be worth in its next best alternative use. |
| Wage Rate (w) | Cost of hiring one worker for one hour. |
| Sunk Cost | Expenditure that once made cannot be recovered. |
| Rental Rate (v) | Cost of hiring one machine for one hour. |
| Economic Profits (pi) | The difference between a firm's total revenues and its total economic costs. |
| Expansion Path | The set of cost-minimizing input combinations a firm will choose to produce various levels of outputs (when the prices of inputs are held constant). |
| Average Cost | Total cost divided by output; a common measure of cost per unit. |
| Marginal Cost | Additional cost of producing one more unit of output. |
| Short Run | The period of time in which a firm must consider some inputs to be fixed in making its decisions. |
| Long Run | The period of time in which a firm may consider all of its inputs to be variable in making its decisions. |
| Fixed Costs | Costs associated with inputs that are fixed in the short run. |
| Variable Costs | Costs associated with inputs that can be varied in the short run. |
| Economies of Scope | Reductions in the costs of one product of a multiproduct firm when the output of another product is increased. |
| Marginal Revenue | Extra revenue a firm receives when it sells one more unit of output. |
| Price Taker | A firm or individual whose decisions regarding buying or selling have no effect on the prevailing market price of a good. |
| Marginal Revenue Curve | Curve showing the relation between the quantity a firm sells and the revenue revenue yielded by the last unit sold. Derived from the demand curve. |
| Firm's Short-Run Supply Curve | Relationship between price and quantity supplied by a firm in the short run. |
| Shutdown Price | The price below which the firm will choose to produce no output in the short run. Equal to minimum average variable cost. |
| Supply Response | Change in quantity of output supplied in response to a change in demand conditions. |
| Market Period | Short period of time during which quantity supplied is fixed. |
| Equilibrium Price | Price at which the quantity demanded by buyers of a good is equal to the quantity supplied by sellers of the good. |
| Short-Run Market Supply Curve | The relationship between market price and quantity supplied of a good in the short run. |
| Short-Run Elasticity of Supply | Percentage change in quantity supplied in the short run in response to a one percent change in price. |
| Constant Cost Case | Market in which entry or exit has no effect on the cost curves of firms. |
| Increasing Cost Case | Market in which the entry of firms increases firms' costs. |
| Long-Run Elasticity of Supply | Percentage change in quantity supplied in the long run in response to a one percent change in price. |
| Consumer Surplus | Extra value individuals receive from consuming a good over what they pay for it. What people would be willing to pay for the right to consume a good at its current price. |
| Producer Surplus | Extra value producers get for a good in excess of the opportunity costs they incur by producing it. What all producers would pay for the right to sell a good at its current market price. |
| Ricardian Rent | Long-run profits earned by owners of low-cost firms. May be capitalized into the prices of these firms' inputs. |
| Economically Efficient Allocation of Resources | Allocation of resources in which the sum of consumer and producer surplus is maximized. Reflects the best (utility-maximizing) use of scarce resources. |
| Tax Incidence Theory | Study of the final burden of a tax after considering all market reactions to it. |
| Deadweight Loss | Losses of consumer and producer surplus that are not transferred to other parties. |
| Tariff | Tax on an imported good. May be equivalent to a quota or a nonquantitative restriction on trade. |
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