AP®︎ Microeconomics: Unit 3 Flashcards

Shows the relationship between inputs used and output produced in the short run and long run.

Adding more of one input while others stay fixed eventually causes marginal product to fall.

MP may first rise, then fall, then reach zero, and eventually become negative.

Measures output as total output, output per input, and extra output from one more input.

Uses tables or graphs to find productivity measures and show how marginal changes affect total output.

When marginal product exceeds average product, average product rises; when below, it falls.

Fixed costs do not vary with output, variable costs do, and total cost equals both combined.

AFC = FC/Q, AVC = VC/Q, and ATC = TC/Q = AVC + AFC.

The additional cost of producing one more unit, calculated as change in total cost over change in output.

A horizontal line because fixed cost stays constant at every output level, including zero.

Both rise with output, and total cost is total variable cost shifted upward by fixed cost.

It slopes downward continuously because the same fixed cost is spread over more units.

Both are U-shaped and average total cost always lies above average variable cost by average fixed cost.

As output rises, average fixed cost shrinks toward zero, so average total cost gets closer to average variable cost.

Higher fixed costs shift AFC and ATC up, but do not change AVC or MC.

Higher variable costs shift AVC, ATC, and MC up, while AFC stays unchanged.

Higher productivity lowers per-unit and marginal costs, shifting relevant cost curves downward.

Accounting measures use explicit costs only, while economic measures include implicit opportunity costs.

Specialization lowers early marginal cost, but diminishing marginal returns eventually make marginal cost rise.

When marginal cost is below average it pulls it down, and it crosses averages at their minimums.

In the short run, at least one input or cost is fixed; in the long run, all inputs and costs are variable.

Per-unit cost falls as a firm increases output and expands its scale of production.

Per-unit cost stays constant as output rises, at the flat minimum portion of LRATC.

Per-unit cost rises as a firm increases output and becomes too large to manage efficiently.

The lowest average total cost at each output, formed as the envelope of SRATC curves.

The lowest output level that achieves minimum LRATC and helps determine market concentration.

Describes how output changes when all inputs change proportionally in the long run, including increasing, constant, and decreasing returns to scale.

Total revenue minus explicit costs only.

Zero economic profit, where total revenue equals explicit plus implicit costs.

A negative economic profit, occurring when total revenue is less than total economic cost.

Direct out-of-pocket business expenses such as wages, rent, and materials.

Opportunity costs of self-owned resources, including forgone wages, capital returns, and entrepreneurial time.

Economic profit encourages expansion, while economic loss encourages reducing output or exiting.

Positive economic profit earned in the long run.

A situation where economic profit equals zero because total revenue equals total economic cost.

Economic profit equals total revenue minus total economic cost, including both explicit and implicit costs; it may be positive, zero (normal profit), or negative (economic loss).

If MR > MC, increase output; if MR < MC, decrease output; if MR = MC, keep output unchanged.

Operate if total revenue covers total variable cost; otherwise produce zero output.

Costs that must be paid even when output is zero.

It keeps operating when revenue covers variable costs and losses are smaller than fixed costs.

Firms can freely join or leave the market without major legal, financial, or structural obstacles.

Entry shifts supply right and lowers price; exit shifts supply left and raises price.

Entry and exit continue until firms earn zero economic profit at the market price.

Produce in the short run when price covers AVC, or equivalently when total revenue covers total variable cost.

A market with many small firms, identical products, free entry and exit, and no price control.

A market supply-demand graph paired with a firm cost-revenue graph linked by the market price.

Profit if price exceeds ATC, loss if AVC < price < ATC, shutdown if price falls below AVC.

The minimum average variable cost; below this price, a firm produces zero in the short run.

Total revenue minus total cost; on a graph, it is (price minus ATC) times quantity.

A temporary market outcome where firms may earn profits, losses, or break even at the current price.

The output level where average total cost is minimized.

A demand shift changes market price, creates short-run profit or loss, then triggers entry or exit.

Industry expansion leaves long-run price unchanged, raises it, or lowers it depending on input cost changes.

Market price communicates marginal benefits and marginal costs, guiding consumers and producers to efficient choices.

A competitive firm's demand curve is horizontal, so price equals marginal revenue for every unit sold.

A market state where firms earn zero economic profit, so no firms enter or exit.

In long-run equilibrium, price equals marginal cost and minimum average total cost.

Total cost exceeds total revenue; on a graph, it is (ATC minus price) times quantity.

A firm maximizes profit by producing the quantity where marginal cost equals marginal revenue and marginal cost is rising; in perfect competition, this output is produced only if price covers average variable cost in the short run.

A firm that must accept the market price because its own output is too small to affect price.

With free entry and exit, economic profits attract new firms and economic losses cause firms to leave, shifting market supply until long-run equilibrium is restored.