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LONG-RUN TOTAL COST: The opportunity cost incurred by all of the factors of production used in the long run (when all inputs are variable) by a firm to produce of a good or service, including wages paid to labor, rent paid for the land, interest paid to capital owners, and a normal profit paid to entrepreneurs. Unlike short-run total cost, long-run total cost can not be separated into fixed cost and variable cost. In the long run, all inputs are variable, so all cost is variable.

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Lesson 11: Circular Flow | Unit 1: Basic Flow Page: 5 of 22

Topic: The Payment Flow <=PAGE BACK | PAGE NEXT=>

The payment flow goes in the opposite direction of the physical flow. A physical commodity goes one direction through markets and payment goes the other.
  • The household sector buys production from the business sector (counter-clockwise flow) in exchange for payment (clockwise flow) through product markets.
  • The business sector buys resources from the household sector (counter-clockwise flow) in exchange for payment (clockwise flow) through factor markets.
  • Revenue received by the business sector for selling goods is used to pay the factors of production.
  • Factor payments become income used by household sector to buy production from the business sector.
  • The circular flow makes about six cycles around the economy each year.

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PERFECT COMPETITION, LOSS MINIMIZATION

A perfectly competitive firm is presumed to produce the quantity of output that minimizes economic losses, if price is greater than average variable cost but less than average total cost. This is one of three short-run production alternatives facing a firm. The other two are profit maximization (if price exceeds average total cost) and shutdown (if price is less than average variable cost).

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APLS

PURPLE SMARPHIN
[What's This?]

Today, you are likely to spend a great deal of time touring the new suburban shopping complex wanting to buy either a replacement remote control for your television or a replacement nozzle for your shower. Be on the lookout for infected paper cuts.
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This isn't me! What am I?

The average length of a "business lunch" is about 36 minutes.
"No amount of business school training or work experience can teach what is ultimately a matter of personal character. "

-- Truett Cathy, Chick-fil-A Inc. founder

LRAC
Long Run Average Cost
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