question
firm
answer
an organization that uses resources to produce a product, which it then sells
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total revenue
answer
Price x Quantity
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b cost
answer
whatever must be given up to obtain some item
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implicit costs
answer
opportunity costs
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explicit costs
answer
input costs that require an outlay of money by the firm
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fixed costs
answer
costs that remain constant as output changes
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economic profit
answer
total revenue - explicit costs - implicit costs
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accounting profit
answer
total revenue minus total explicit cost
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marginal cost
answer
the cost of producing one more unit of a good (change in variable cost)
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marginal revenue
answer
the additional income from selling one more unit of a good; sometimes equal to price
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variable cost
answer
a cost that rises or falls depending on how much is produced
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average variable cost
answer
variable cost divided by the quantity of output
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average fixed cost
answer
fixed cost divided by the quantity of output
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total cost
answer
fixed costs + variable costs
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average total cost
answer
total cost divided by the quantity of output
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accounting profit ignores what?
answer
implicit costs
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accounting profit is usually ______ in relation to the economic profit
answer
bigger
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diminishing marginal product
answer
the marginal product of an input decreases as the quantity of the input increases
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diminishing marginal returns
answer
a level of production in which the marginal product of labor decreases as the number of workers increases
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goal of a firm
answer
maximize profit
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perfectly competitive market
answer
(1) many buyers and sellers
(2) all firms selling identical products
(3) no barriers to entry
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profit maximizing quantity
answer
MR=MC (as long as marginal revenue exceeds marginal cost, increasing the qty produced raises profit)
question
why does price curve = horizontal
answer
firms = price takers
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rules for profit maximization
answer
- if MR > MC , firms should increase output-if MC > MR, firms should decrease output- at profit maximizing level of output, MR = MC
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