Microeconomics vocab: Production, costs, and revenue

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  • Created by: Z212
  • Created on: 25-10-16 16:07
Firm
a productive organisation which sells its output of goods or services commercially
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Marginal returns of labour
the addition to total output brought about by adding one more worker to the labour force
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Law of diminishing returns
a short-run law which states that as a variable factor of production is added to a fixed factor of production, eventually both the marginal and average returns to the variable factor will begin to fall
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Average returns of labour
total output divided by the total number of workers employed
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Total returns of labour
total output produced by all the workers employed by a firm
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Productivity
output per unit of input
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Labour productivity
output per worker
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Returns to scale
the rate by which output changes if the scale of all the factors of production is changed
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Increasing returns to scale
when the scale of all the factors of production employed increases, output increases at a faster rate than inputs
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Constant returns to scale
when the scale of all the factors of production employed increases, output increases at the same rate as input
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Decreasing returns to scale
when the scale of all the factors of production employed increases, output increases at a slower rate than inputs
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Economy of scale
as output increases, long-run average cost falls
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Diseconomy of scale
as output increases, long-run average cost rises
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Long-run average cost
cost per unit of output incurred when all factors of production or inputs can be varied
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Optimum firm size
the size of firm capable of producing at the lowest average cost and thus being productively efficient
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Minimum efficient scale
the lowest output at which the firm is able to produce at the minimum achievable LRAC
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Internal economies and diseconomies of scale
changes in long-run average costs of production resulting from chanes in the size or scale of a firm
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External economy of scale
a fall in long-run average costs of production resulting from the growth of the market or industry of which the firm is a part
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External diseconomy of scale
an increase in long-run average costs of production resulting from the growth of the market or industry of which the firm is a part
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Marginal cost
addition to total cost resulting from producing one additional unit of output
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Average fixed cost
total cost of employing the fixed facotrs of production to produce a particular level of output, divided by the size of output (AFC= TFC/Q)
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Average variable cost
total cost of employing the variable factors of production to produce a particular level of output, divided by the size of output (AVC= TVC/Q)
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Average total cost
total cost of producing a particular level of output, divided by the size of output; often called average cost (ATC= AFC+AVC)
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Long-run marginal cost
addition to total cost resulting from producing one additional unit of output when all the factors of production are variable
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Long-run average cost
total cost of producing a particular level of output when all the factors of production are variable
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Total revenue
all the money received by a firm from selling its total output
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Average revenue
total revenue divided by output (AR= TR/Q)
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Marginal revenue
addition to total revenue resulting from the sale of one more unit of the product (MR= change in TR/change in Q)
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Price-taker
a firm so small that it has to accept the ruling market price. If the firm raises its price, it loses all its sales; if it cuts its price, it gains no advantage
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Price-maker
when a firm faces a downward sloping demand curve for its product, it possesses the market power to set the price at which it sells the product
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Quantity-setter
when a firm faces downward-sloping demand curve for its product, it possesses the market power to set the quantity of the good it wishes to sell
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Profit
the difference between total sales revenue and total cost of production
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Profit maximisation
occurs at the level of output at which total profit is greatest
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Normal profit
the minimum profit a firm must make to stay in business, which is, however, insufficient to attract new firms into the market
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abnormal profit
profit over and above normal profit
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Technological change
a term that is used to describe the overall effect of invention, innovation, and the diffusion or spread of technology in the economy
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Invention
making something entirely new; something that did not exist before at all
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Innovation
Improves on or makes a significant contribution to something that has already been invented, thereby turning the results of invention into a product
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Mechanisation
process of moving from a labour-intensive to a more capital-intensive method of production, employing more machines and fewer workers
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Automation
Automatic control where machines operate other machines
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Productive effeiceny
the level of output at which average costs of production are minimised
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Dynamic efficiency
occurs in the long-run, leading to the development of new products and more efficient processes that improve productive efficiency
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Monopolistic competition
a market structure in which firms have many competitors, but each one sells a slightly different product
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Duopoly
two firms only in a market
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Creative destruction
capitalism evoling and renewing itself over time through new technologies and innovations replacing older technologies and innovations
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Other cards in this set

Card 2

Front

the addition to total output brought about by adding one more worker to the labour force

Back

Marginal returns of labour

Card 3

Front

a short-run law which states that as a variable factor of production is added to a fixed factor of production, eventually both the marginal and average returns to the variable factor will begin to fall

Back

Preview of the back of card 3

Card 4

Front

total output divided by the total number of workers employed

Back

Preview of the back of card 4

Card 5

Front

total output produced by all the workers employed by a firm

Back

Preview of the back of card 5
View more cards

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