Economics Test 3

Front 1

A Firm

Back 1

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

Front 2

Explicit Costs

Back 2

"Out of POcket" expenses that MUST be paid

Ex: Wages, rent, taxes

Front 3

Accounting Profits

Back 3

= Total Revenue- Explicit Coasts

Front 4

Implicit Costs

Back 4

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

Front 5

Opportunity Cost of Capital

Back 5

Availab;e reutrn ont he next best project, economists consider this as a production cost

Front 6

Opportunity Cost Of Labor

Back 6

Possible earnings fromt eh next best job, economists consider this as a production cost

Front 7

Economic Profit

Back 7

= Total Revenue-Explicit-Implicit costs

Accounting Profits-Implicit Costs

Front 8

The Goal of a firm is to

Back 8

Max Profits

Front 9

TIme period where at least one factor of production is fixed is

Back 9

Short Run

Front 10

The time period where no inputs in a production process are fixed is

Back 10

Long Run

Front 11

When Marginal Product of labor increases intially

Back 11

1. Workers can specilize in certian tasks
2. Learning by doing may be relevant

Front 12

MPl (Marginal Product of labor)

Back 12

Change in Total Product(Q)/
Change in labor

Front 13

The Law of Diminishing Marginal Productivity

Back 13

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

Front 14

In the Short Run
Total Fixed Costs

Back 14

Don't change with output

Front 15

In the Short Run
Total variable costs

Back 15

do change with output

Front 16

Total Costs

Back 16

= TFC+ TVC

Front 17

Average FIxed COst

Back 17

= TFC/Q

Front 18

Average Variable Costs

Back 18

TVC/Q

Front 19

Average total costs

Back 19

TC/Q

Front 20

MArginal COst

Back 20

Change in total cost due to an increase in output in the production process

MC= change in TC/ change in Q

Front 21

In the long run, all cost are

Back 21

Variable
becuase FC=0 in the LR

Front 22

WHen the LRAC curve is decreasing as quantity is increaseing, the firm is experiencing

Back 22

Economies of Scale- reasons- specialization or resources,

Front 23

When the LRAC curve is increasing, the firm is experiencing

Back 23

diseconomies of scale- reason: difficult to manage a very large scale operation

Front 24

Production decisions ignore

Back 24

Sunk costs- fixed costs incurred in the past

Front 25

Produce as long as MR is

Back 25

Greater than or equal to MC

Front 26

If MC intersects MR at more than one output level,

Back 26

we can compare profits at each output level where MR=MC to determine the profit-maximizinf quantity where profit=TR-TC

Front 27

Firms will not produce in the short run id

Back 27

Price is less than AVC

Front 28

Firms will not produce in the long run if

Back 28

they are earning negative economic profits

Front 29

Assumptions or conditions of perfect competition

Back 29

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

Front 30

IN the short run the profit maximizing quantity is

Back 30

the quanitity where MR=MC

Front 31

P=MC

Back 31

only for perfect competition

Front 32

At the profit maximizing quantity a firm will produce in the short-run if

Back 32

Price is greater than or equal to AVC

Front 33

SOme firms say that they cannot afford to go out of business despite the fact that they are losing money

Back 33

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

Front 34

Economic Profit=

Back 34

Profit Maximization= TR-TC
= (P-AVC)*Q-TFC

Front 35

shutdown point

Back 35

at a lower price the firm would not produce in the short run becuase price would be less than AVC

Front 36

a perfectly competitive firm
is a

Back 36

Price taker because they have no influence on price

Front 37

P<AVC

Back 37

Exit in the short run, (In this case P <ATC also)

Front 38

P>AVC but P<ATC

Back 38

produce in the short run, some firms exit in long run

Fewer firms means that industry supply curve shifts inward

Prices rise, market quantity falls, individual firms quantity rised

Front 39

P=ATC

Back 39

this is long run equilibrium in perfect competition with zero economic profit. No firm has an incetive to enter or exit the industryk

Front 40

P>ATC

Back 40

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

Front 41

Monoploy

Back 41

Means "one seller"= Opposite end of the market power spectrum when compared with perfect competition

Front 42

one seller-

Back 42

market demand is the monopolists demand

Front 43

why is MR under the demand curve

Back 43

to sell an sddition unit the monopolist must lower the price to all consumers to sell an extra unit of output

Front 44

you are

Back 44

Beautiful

Front 45

You will

Back 45

Get There