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35 Cards in this Set
- Front
- Back
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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
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firms revenue - operating expenses and taxes paid.
-not ideal becuase is neglects some of the firm's cost |
Accounting Profit
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highest valued alternative that must be given up to engage in an activity
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Opportunity Cost
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cost that involves spending money
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Explicit Cost
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cost not involving money
-time could be spent sleeping or working to earn $ |
Implicit Cost
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include explicit and implicit costs
-because accounting profit exclude some implicit costs, it will be larger than economic profit |
Economic Costs
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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
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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.
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Long Run
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cost of all the inputs a firm uses in production
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Total Cost
TC=FC+VC |
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costs that change as output changes
- labor costs, raw material costs, costs of electricity and other utilities |
Variable Costs
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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
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the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs
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Production Function
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TC/Q
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Average Total Cost
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additional output a firm produces as a result of hiring one more worker
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Marginal product of labor
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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
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Law of diminishing returns
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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
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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
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FC/Q
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Average Fixed Cost
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VC/Q
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Average Variable Cost
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When MC<AVC or AFC
When MC>AVC or AFC When MC=AVC or AFC |
decrease
increase minimum points |
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In the long run all costs are variable...there are no fixed costs in the long run.
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In long run... TC=VC and ATC=AVC
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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.
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long-run average cost curve
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exist when a firm's long run average costs fall as it increases output
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economies of scale
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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
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perfectly competitive market
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buyer or seller that is unable to affect the market price
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price taker
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TR-TC
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Profit
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TR/# units sold
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Average Revenue
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change is TR from selling one more unit
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Marginal Revenue
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difference between TR and TC is the greatest
MR=MC |
profit-maximizing level of output
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firm's revenues minus all its costs, implicit and explicit
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economic profit
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situation in which a firm's total revenue is less than its total cost, including all implicit costs
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economic loss
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situation in which the entry and exit of firms has resulted in the typical firm breaking even
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long run competitive equilibrium
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curve showing the relationship in the long run between market price and the quantity supplied
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long run supply curve
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a good or service is produced at the lowest possible cost
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productive efficiency
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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
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allocative efficiency
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