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AD CURVE: The aggregate demand curve, which is a graphical representation of the relation between aggregate expenditures on real production and the price level, holding all ceteris paribus aggregate demand determinants constant. The aggregate demand, or AD, curve is one side of the graphical presentation of the aggregate market. The other side is occupied by the aggregate supply curve (which is actually two curves, the long-run aggregate supply curve and the short-run aggregate supply curve). The negative slope of the aggregate demand curve captures the inverse relation between aggregate expenditures on real production and the price level. This negative slope is attributable to the interest-rate effect, real-balance effect, and net-export effect.

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Lesson 16: Perfect Competition | Unit 4: Long-Run Equilibrium Page: 19 of 28

Topic: Long-Run Marginal Cost <=PAGE BACK | PAGE NEXT=>

  • The firm's long-run marginal cost:

  • Long-run marginal cost is the change in total cost resulting from a change in the quantity of output produced by a firm in the long run.
  • The primary difference between the long run and short run is what constitutes cost.

    • In the short run, cost changes due to changes in variable inputs such as labor and materials. In the long run, cost changes due to changes in ALL inputs, because ALL inputs are now variable.

    • Moreover, short-run changes in cost are guided by the law of diminishing marginal returns. Long-run changes in cost, in contrast, are guided by returns to scale.


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EFFICIENT INFORMATION SEARCH

A comparison between the cost of acquiring information and the benefit generated by the information such that it is not possible to increase welfare or well being by acquiring any more of any less information. Efficient information search is achieved by equating the marginal cost of search with the benefit of search. This efficiency is comparable to the profit-maximizing decision by a producer and the utility-maximizing decision by a consumer.

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Today, you are likely to spend a great deal of time searching for rummage sales seeking to buy either a birthday gift for your grandmother or a T-shirt commemorating yesterday. Be on the lookout for empty parking spaces that appear to be near the entrance to a store.
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The word "fiscal" is derived from a Latin word meaning "moneybag."
"Think not of yourself as the architect of your career but as the sculptor. Expect to have to do a lot of hard hammering and chiseling and scraping and polishing. "

-- B. C. Forbes, founder, Forbes magazine

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