question
Total Revenue
answer
The amount a firm receives from the sale of its output
question
Total cost
answer
The market value of the inputs a firm uses in production
question
Explicit costs
answer
Require an outlay of money
E.g. Paying wages to workers
E.g. Paying wages to workers
question
Implicit Costs
answer
Do not require a cash outlay
E.g the opportunity cost of the owner's time
E.g the opportunity cost of the owner's time
question
Accounting profit
answer
total revenue minus total explicit costs
(ignores implicit costs, higher)
(ignores implicit costs, higher)
question
Economic Profit
answer
total revenue minus total costs
(including explicit and implicit costs)
(including explicit and implicit costs)
question
Production function
answer
Shows the relationship between the quantity of inputs used to produce a good and the quantity of output of that good
question
marginal product
answer
The increase in output arising from an additional unit of that input, holding all other inputs constant
question
Diminishing marginal product
answer
The marginal product of an input declines as the quantity of the input increases (other things equal)
question
Marginal cost
answer
The increase in total cost from producing one more unit
question
Fixed costs
answer
Do not vary with the quantity of output produced
(Ex. cost of equipment, loan payments, rent)
(Ex. cost of equipment, loan payments, rent)
question
Variable Costs
answer
Vary with the quantity produced
(ex. cost of materials)
(ex. cost of materials)
question
Total cost equation
answer
Equation= FC + VC
question
Efficient scale
answer
The quantity that minimizes ATC
question
Costs in the short run
answer
Some inputs are fixed (e.g, factories, land)
question
Costs in the long run
answer
All inputs are variable (e.g, firms can build more factories or sell existing ones)
question
Economies of scale
answer
ATC falls as Q increases
question
Constant returns to scale
answer
ATC stays the same as Q increases
question
Diseconomies of scale
answer
ATC rises as Q increases
question
Characteristics of perfect competition
answer
Many buyers and many sellers
The goods offered for sale are largely the same
Firms can freely enter or exit the market
The goods offered for sale are largely the same
Firms can freely enter or exit the market
question
Total Revenue equation
answer
P x Q
question
Average revenue
answer
TR/Q=P
question
Marginal Revenue
answer
The change in TR from selling one more unit
question
shutdown
answer
A short-run decision not to produce anything because of market conditions (must still play FC)
question
Exit
answer
A long-run decision to leave the market (Zero costs)
question
Short-run decision to shut down
answer
P<AVC
question
Sunk Cost
answer
A cost that has already been committed and cannot be recovered
Irrelevant to decisions, must pay regardless
FC is one, since firm must pay whether it produces or shuts down (FC should not matter in the decision to shut down
Irrelevant to decisions, must pay regardless
FC is one, since firm must pay whether it produces or shuts down (FC should not matter in the decision to shut down
question
long run decision to exit
answer
P<ATC
question
New firm's decision to enter market
answer
P>ATC
question
Market Supply Assumptions
answer
All existing firms and potential entrants have identical costs
Each firm's costs do not change as other firms enter or exit the market
The number of firms in the market is fixed in the short run, variable in the long run
Each firm's costs do not change as other firms enter or exit the market
The number of firms in the market is fixed in the short run, variable in the long run
question
SR market supply curve
answer
As long as P is greater than AVC, each firm will produce its profit maximizing quantity, where MR=MC
question
Positive economic profit (If existing firms)
answer
-New firms enter, SR market supply shifts right
-P falls, reducing profits and slowing entry
-P falls, reducing profits and slowing entry
question
Losses (If existing firms)
answer
-Some firms exit, SR market supply shifts left
-P rises, reducing remaning firms' losses
-P rises, reducing remaning firms' losses
question
Long- run equilibrium
answer
The process of entry or exit is complete- remaining firms earn zero economic profit
question
Sloping upward LR supply curve (horizontal)
answer
-All firms have identical costs
-costs do not change as other firms enter or exit the market
-costs do not change as other firms enter or exit the market
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
