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business firm
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an organization that produces goods and services that are sold for profit
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Market Coordination
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The process in which individuals perform tasks, such as producing certain quantities of goods, based on changes in market forces
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Managerial coordination
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the process in which managers direct employees to perform certain tasks
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Shirking
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when a worker puts forth less than the agreed-to effort
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Monitor
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Someone who eliminates shirking
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residual claimant
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Some who claims profits as a business claims them
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Profit
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The financial gain made in a transaction
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explicit cost
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a monetary cost
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implicit cost
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a non-monetary cost
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accounting profit
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total revenue - explicit costs
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economic profit
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total revenue-total cost
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Normal profit
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when you have zero economic profit
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fixed input
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an input whose quantity is fixed for a period of time and cannot be varied
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variable input
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an input whose quantity can be changed
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short run
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the time period in which at least one input is fixed
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Long run
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a period where all parts of the production can be varied
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Marginal Physical Product
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the change in output associated with the change of the variable input by one unit
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Law of Diminishing Marginal Returns
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As more of a variable resource is added to a fixed resource, marginal product eventually declines and could become negative
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fixed costs
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costs that remain constant as output changes
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variable cost
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a cost that rises or falls depending on how much is produced
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total costs
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fixed costs + variable costs
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Mariginal cost
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the cost of producing one more unit of a good
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average fixed cost
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fixed cost divided by the quantity of output
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Average variable cost
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variable cost divided by the quantity of output
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Average total cost
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total cost divided by the quantity of output
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Average-Marginal Rule
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When the marginal magnitude is above the average magnitude the average magnitude rises
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sunk cost
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a cost that has already been incurred and can't be recovered
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LRATC curve
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A curve that shows the lowest (unit) cost at which the firm can produce any given level of output.
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economies of scale
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factors that cause a producer's average cost per unit to fall as output rises
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Constant returns to scale
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the condition in which input and outputs increase equally
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diseconomies of scale
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increases in cost per unit when output increases
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minimum efficient scale
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The lowest rate of output at which a firm takes full advantage of economies of scale
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average productivity equals
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Q output/Q Labor
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economies of scale happen because
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more specialization, and more access to higher priced resources
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Diseconomies of scale happen because
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firms get to big to manage efficiently
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