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### 45 Cards in this Set

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 A Firm an organization commbining land labor and capital to produce a product or a service, hopefully for profit if the organization is a private for profit company Explicit Costs "Out of POcket" expenses that MUST be paid Ex: Wages, rent, taxes Accounting Profits = Total Revenue- Explicit Coasts Implicit Costs Expenses that are NOT out of pocket and are frequently not calculated by managers Ex: opportunity cost of labor and the opportunity cost of capital Opportunity Cost of Capital Availab;e reutrn ont he next best project, economists consider this as a production cost Opportunity Cost Of Labor Possible earnings fromt eh next best job, economists consider this as a production cost Economic Profit = Total Revenue-Explicit-Implicit costs Accounting Profits-Implicit Costs The Goal of a firm is to Max Profits TIme period where at least one factor of production is fixed is Short Run The time period where no inputs in a production process are fixed is Long Run When Marginal Product of labor increases intially 1. Workers can specilize in certian tasks 2. Learning by doing may be relevant MPl (Marginal Product of labor) Change in Total Product(Q)/ Change in labor The Law of Diminishing Marginal Productivity When adding addititonal units of a variable input (i.e labor) holding all other inputs fixed (I.e capital) a point exists beyond which the additional output resulting form each additional input will decrease In the Short Run Total Fixed Costs Don't change with output In the Short Run Total variable costs do change with output Total Costs = TFC+ TVC Average FIxed COst = TFC/Q Average Variable Costs TVC/Q Average total costs TC/Q MArginal COst Change in total cost due to an increase in output in the production process MC= change in TC/ change in Q In the long run, all cost are Variable becuase FC=0 in the LR WHen the LRAC curve is decreasing as quantity is increaseing, the firm is experiencing Economies of Scale- reasons- specialization or resources, When the LRAC curve is increasing, the firm is experiencing diseconomies of scale- reason: difficult to manage a very large scale operation Production decisions ignore Sunk costs- fixed costs incurred in the past Produce as long as MR is Greater than or equal to MC If MC intersects MR at more than one output level, we can compare profits at each output level where MR=MC to determine the profit-maximizinf quantity where profit=TR-TC Firms will not produce in the short run id Price is less than AVC Firms will not produce in the long run if they are earning negative economic profits Assumptions or conditions of perfect competition 1. Many Buyers and sellers 2. Perfect information about prices and other factos 3. Undifferentiated products or homogeneous products 4. No barriers to entry or exit IN the short run the profit maximizing quantity is the quanitity where MR=MC P=MC only for perfect competition At the profit maximizing quantity a firm will produce in the short-run if Price is greater than or equal to AVC SOme firms say that they cannot afford to go out of business despite the fact that they are losing money The reason is tprobably because the selling price is greater than average variable cost of firms that also have fixed cost. If P is greater then AVC then the firm shoudl produce a = quantity, at least in the SR Economic Profit= Profit Maximization= TR-TC = (P-AVC)*Q-TFC shutdown point at a lower price the firm would not produce in the short run becuase price would be less than AVC a perfectly competitive firm is a Price taker because they have no influence on price PAVC but PATC these profits attract new firms, entry shirts the supply cure to the reight resulting in loweer prices and greater quantities for the market. Each individual firm's quantity will however decrease Monoploy Means "one seller"= Opposite end of the market power spectrum when compared with perfect competition one seller- market demand is the monopolists demand why is MR under the demand curve to sell an sddition unit the monopolist must lower the price to all consumers to sell an extra unit of output you are Beautiful You will Get There