question
firms want to maximize their profits by engaging in
answer
profit maximization
question
profit =
answer
total revenue - total cost
question
production technology is
answer
used by firms to turn inputs into outputs
question
fixed costs
answer
they do not change based on output change (ex: machinery)
question
variable costs
answer
change based on change in output (ex: number of workers and buying more resources)
question
in the short term firms cannot change
answer
fixed costs or technology but they can adjust variable inputs
question
in the long term firms can change
answer
both fixed and variable costs
question
the extent of short term and long term depend on the
answer
nature of the business
question
explicit costs
answer
firm spends money on buying items (wages and payments)
question
implicit costs
answer
opportunities costs of the business
question
accounting profit =
answer
total revenue - explicit financial costs/ answers the question about what you spend your money on
question
the opportunity cost of running a business includes
answer
forgone wages and interest
question
economic profit =
answer
total revenue - (explicit costs + implicit costs)/ answers the question what is my best decision
question
economic profit takes in account
answer
opportunity costs and time
question
use average revenue and average costs to measure if a business is
answer
profitable
question
average revenue =
answer
total revenue/ quantity
question
average costs =
answer
(fixed costs/ their quantity) + (variable costs/ their quantity)
question
as you start to increase production from a low level your
answer
average costs will initially fall
question
eventually variable costs rise at it
answer
becomes more expensive to inc production
question
profit margin =
answer
average revenue - average costs
question
posit profit margin means you have
answer
economic profit
question
economic profit is important for long run analysis of
answer
firm entry and exit
question
The main difference between the short run and the long run is that
answer
in the short run, at least one of the firm's inputs is fixed.
question
A firm's ___________________ are costs that increase as quantity produced increases. These costs often show _______________________ by increasing at an increasing rate.
answer
variable costs; diminishing marginal returns
question
A firm's ___________________ are costs that are incurred even if there is no output. In the short run, these costs ___________________ as production increases
answer
fixed costs; do not change
question
Accounting profit is different than economic profit because
answer
accounting profit ignores the opportunity cost of launching a new business.
question
After doing your research, you are confident that you will make an accounting profit if you launch the business but feel it is very unlikely that you will make an economic profit. In this case, you ____________
start the business.
start the business.
answer
should not
question
economic profit and accounting profit both use
answer
explicit costs
question
a firms economic profit can be different from
answer
accounting profit
question
implicit costs are related to
answer
opportunity costs
question
total costs =
answer
fixed costs + variable costs
question
marginal costs =
answer
change in total costs / change in quantity
question
average total costs =
answer
total costs / quantity
question
average variable costs =
answer
variable costs / quantity
question
marginal costs curve is u shaped because
answer
when your business is small there are more inefficiencies so as we hire more the business becomes more efficient/ however marginal costs will decrease when a business wants to largely expand due to increasing marginal costs: each worker will ultimately become less efficient and cost more
question
average total costs decline quickly because
answer
fixed costs are being spied over more units
question
average total costs intersect marginal cost curve when
answer
it is at its lowest
question
since marginal cost is the cost of the next unit and average cost is costs spread over all units, if the next unit costs more than the average of the previous unit the
answer
average goes up
question
average variable costs are always below average total costs because
answer
they do not include fixed costs
question
average variable costs also intersect marginal cost curve at lowest point for same reason that average total cost does:
answer
once marginal costs are above average variable costs the average variable costs must increase
question
in the long run there are not fixed costs only
answer
variable costs
question
long run averrable variable costs allow for change in business size and machinery which leads to economies of scale:
answer
when long run average costs fall, quantity/ output increase
question
Average fixed costs will
answer
fall as output rises.
question
the amount by which total cost increases when an additional unit is produced:
answer
marginal costs
question
the sum of all costs that change as output changes divided by the number of units produced:
answer
average variable costs
question
Average cost equals:
answer
total cost divided by output.
question
The change in total variable cost which accompanies one extra unit of output is
answer
marginal cost.
question
The marginal cost curve intersects
answer
the minimum of the average variable cost and average total cost curves.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
