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35 Cards in this Set

  • Front
  • Back
sum of firm's revenues, cost, and profit over a period of time

- shows firm's revenue, costs, profit for firm's fiscal year
Income Statement
firms revenue - operating expenses and taxes paid.

-not ideal becuase is neglects some of the firm's cost
Accounting Profit
highest valued alternative that must be given up to engage in an activity
Opportunity Cost
cost that involves spending money
Explicit Cost
cost not involving money

-time could be spent sleeping or working to earn $
Implicit Cost
include explicit and implicit costs

-because accounting profit exclude some implicit costs, it will be larger than economic profit
Economic Costs
period of time when at least one firm's inputs is fixed

-firm's technology and size of its physical plant (factory, store, office) are both fixed, while # of workers the firm hires is variable
Short Run
period of time long enough to alow a firm to vary all of its inputs, to adopt new technology, and to increase or decrease the size of its physical plant.
Long Run
cost of all the inputs a firm uses in production
Total Cost

costs that change as output changes

- labor costs, raw material costs, costs of electricity and other utilities
Variable Costs
Costs that remain constant as output changes

- lease payments for factory or retail space, payments for fire insurance, payments for newspaper and television advertising.
Fixed Costs
the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs
Production Function
Average Total Cost
additional output a firm produces as a result of hiring one more worker
Marginal product of labor
at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline
Law of diminishing returns
total output produced by a firm divided by the quantity of workers

- is the average of the marginal products of labor
Average product of labor
change in a firm's total cost from producing one more unit of a good or servies

-change in total cost/ change in quantity
marginal cost
Average Fixed Cost
Average Variable Cost
When MC<AVC or AFC
When MC>AVC or AFC
When MC=AVC or AFC
minimum points
In the long run all costs are variable...there are no fixed costs in the long run.
In long run... TC=VC and ATC=AVC
curve showing the lowest cost at which the firm is able to produce a given quantity of output in the long run, when no inputs are fixed.
long-run average cost curve
exist when a firm's long run average costs fall as it increases output
economies of scale
a market that meets the conditions of (1) many buyers and sellers (2) all firms selling identical products (3) no barriers to new firms entering the market
perfectly competitive market
buyer or seller that is unable to affect the market price
price taker
TR/# units sold
Average Revenue
change is TR from selling one more unit
Marginal Revenue
difference between TR and TC is the greatest

profit-maximizing level of output
firm's revenues minus all its costs, implicit and explicit
economic profit
situation in which a firm's total revenue is less than its total cost, including all implicit costs
economic loss
situation in which the entry and exit of firms has resulted in the typical firm breaking even
long run competitive equilibrium
curve showing the relationship in the long run between market price and the quantity supplied
long run supply curve
a good or service is produced at the lowest possible cost
productive efficiency
production reflects consumer preferences, in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it
allocative efficiency