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PERFECT COMPETITION, LONG-RUN PRODUCTION ANALYSIS: In the long run, a perfectly competitive firm adjusts plant size, or the quantity of capital, to maximize long-run profit. In addition, the entry and exit of firms into and out of a perfectly competitive market guarantees that each perfectly competitive firm earns nothing more or less than a normal profit. As a perfectly competitive industry reacts to changes in demand, it traces out positive, negative, or horizontal long-run supply curve due to increasing, decreasing, or constant cost.
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Lesson 4: Production Possibilities | Unit 1: Getting Started
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Page: 4 of 24
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- The basic production possibilities analysis.
- How the production possibilities analysis can be used to (a) help answer the "What?" question of allocation, (b) understand basic macroeconomic concepts, and (c) work with graphical analysis.
- The four assumptions of production possibilities analysis-two goods, fixed resources, fixed technology, and technical efficiency.
- The limitations of production possibilities analysis-it tells us what is possible, not what is best.
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LAW OF INCREASING OPPORTUNITY COST The proposition that opportunity cost, the value of foregone production, increases as the quantity of a good produced increases. This fundamental economic principles can be seen in the production possibilities schedule and is illustrated graphically through the slope of the production possibilities curve. It generates a distinctive convex shape, flat at the top and steep at the bottom.
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GREEN LOGIGUIN
[What's This?]
Today, you are likely to spend a great deal of time driving to a factory outlet seeking to buy either a box of multi-colored, plastic paper clips or several orange mixing bowls. Be on the lookout for neighborhood pets, especially belligerent parrots.
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Helping spur the U.S. industrial revolution, Thomas Edison patented nearly 1300 inventions, 300 of which came out of his Menlo Park "invention factory" during a four-year period.
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"If anything terrifies me, I must try to conquer it. " -- Francis Charles Chichester, yachtsman, aviator
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