question
profit
answer
total revenue minus total cost
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explicit costs
answer
costs that involve actual payments of money
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accounting profit
answer
total revenue minus total explicit cost
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implicit costs
answer
costs that do not involve a direct outlay of money
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economic profit
answer
total revenue minus total cost (implicit and explicit costs)
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production function
answer
a relationship showing the quantity of each input that a firm uses and the quantity of output that the firm can produce as a result
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long run
answer
the time period during which the quantities of all inputs can be changed
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short run
answer
the time period during which the quantity of at least one input cannot be changed
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fixed input
answer
an input whose quantity cannot be varied in the short run
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variable input
answer
an input whose quantity can be varied in the short run
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marginal product
answer
the increase in output gained from an additional unit of an input, leaving the quantities of other inputs unchanged
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law of diminishing returns
answer
a law stating that as more of a variable input such as labor is added to a fixed input such as ovens, the marginal product of the variable input eventually declines
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rental rate
answer
the cost of a unit of capital
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wage
answer
the cost of a unit of labor
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fixed cost
answer
the cost of fixed inputs such as capital, the quantity of which cannot be varied in the short run
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variable cost
answer
the cost of variable inputs such as labor, the quantity of which can be varied in the short run to change to quantity of output
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total cost
answer
fixed costs plus variable costs
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average total cost
answer
total cost divided by the quantity of output
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marginal cost
answer
change in total cost divided by the change in the quantity of output
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sunk cost
answer
a cost that has already been paid and cannot be recovered
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economies of scale
answer
economies that exist when an increase in output results in a decrease in the average total cost a firm faces in the long run
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minimum efficient scale
answer
the smallest quantity at which a firm's long run average total cost is minimized
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diseconomies of scale
answer
diseconomies that exist when an increase in output results in an increase in the average total cost a firm faces in the long run
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Competition leads to
answer
better goods, lower prices, and more variety
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perfectively competitive market
answer
- many buyers and sellers
- every firm sells the same standardized product
- buyers and sellers have full information about the product and its price
- it is easy for firms to enter and exit the market
- every firm sells the same standardized product
- buyers and sellers have full information about the product and its price
- it is easy for firms to enter and exit the market
question
price taker
answer
a firm that takes the market equilibrium price as given
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long-run equilibrium
answer
a situation in which no firm has an incentive to enter or exit the market
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average variable cost
answer
a firms variable cost divided by the quantity of its output
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