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AGGREGATE OUTPUT: The macroeconomy's total production of final goods and services. You might recognized it by it's official term gross domestic product. Another related term is aggregate supply. This is the total production in the economy that is purchased by the four basic economic sectors -- household, business, government, and foreign. See also aggregate market, aggregate demand, aggregate expenditures.

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Lesson 16: Perfect Competition | Unit 3: Doing Graphs Page: 16 of 28

Topic: Short-Run Alternatives <=PAGE BACK | PAGE NEXT=>

  • The three alternatives for short-run production facing a perfectly competitive firm are:

    • P > ATC: Total revenue exceeds total cost and the firm receives a positive economic profit. In this case, a firm maximizes profit by producing the quantity of output that equates marginal revenue and marginal cost.

    • ATC < P > AVC: Total revenue falls short of total cost, meaning the firm incurs an economic loss (or negative economic profit). In spite of the loss, because the price exceeds average variable cost, the firm can maximize profit (minimize loss) by producing the quantity of output that equates marginal revenue and marginal cost.

    • P < AVC: Total revenue also falls short of total cost, and the firm incurs an economic loss (or negative economic profit). In this case the firm maximizes profit (that is, minimizes loss) by reducing the quantity of output to zero.


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INFERIOR GOOD

A good for which a change in income causes an opposite change in demand. That is, an increase in income causes a decrease in demand and a decrease in income causes an increase in demand. The income elasticity of demand for an inferior good is negative. An inferior good is one of two alternatives falling within the buyers' income demand determinant. The other is a normal good.

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