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42 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Residental Claimants
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firm owners
-right to any revenue after the costs have been paid -provide strong incentive for owners to keep the costs of producing output low leftovers you claim |
what do they own and do?
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Contracting
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owners contract with individual workers who work independantly
hiring someone who doesn't exactly work for u |
lawnmower guys, pool guys
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Team Production
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Workers are hired by a firm to work together under supervision
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team
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Principal-Agent Problem
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The incentive that arises when the lack of information makes it difficult for the purchaser(principal) to determine whether the seller (agent) is acting in the princiapls best interest
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good for principals?
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Proprietorship
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-owned by a single individual
-makes up 72% of the firms in the market, but account for only 5% of total business revenue UNLIMITED LIABILITY |
individual
complete liability |
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Partnership
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-owned by 2 or more persons
-8% of the firms 10% of the business revenues UNLIMITED LIABILITY |
2 or more people
complete liability |
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Coporation
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-owned by stockholders
-limited liability is limited to their explicit investment -20% of the firms, 85% of the business revenue |
big, many people
liable onle to the money they make |
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Shirking
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slacking off
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explicit costs
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monetary payment is made
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money
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implicit costs
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resources owned by the firm thats don't involve monetary payment
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everything else: opportunity costs, times,
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Economic Profit
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total revenue minus total cost, including all opportunity costs
-will be positive ONLY if earnings exceed opportunity costs -calculated by subtracting BOTH the implicit and explicit costs of the total revenue |
generally less than accounting profit
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Accounting profit
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total revenue minus the expenses of the firm over a period of time,
calcuated by subtracting the explicit costs of the total revenue |
GREATER than economic profit
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Zero economic profit
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isnt a bad thing because the owners receive the same amountof profit rate
earning no more or no less |
earning the same
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Short Run
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very short period of time where the firm can't be adjusted
plant and heavy equipment (capital) is fixed can only be altered by changing the output of variable resources such as LABOR and RAW MATERIALS |
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Long Run
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long enough to where the firm can change
-firms can enter and exist freely |
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Fixed costs
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stay the same, constant
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Variable costs
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vary
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Total Costs
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implicit + explicit costs
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Total fixed costs
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costs that remain the same no matter what. don't change. stay constant.
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example: property taxes, insurance premiums
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Average fixed costs
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costs per unit
FORMULA: TFC/Q(OUTPUT)=AFC -AFC declines as output incleases because the fixed costs will spread over more and more units |
per unit?
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Total Variable Costs
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sum of costs that inclease as output increases
TVC=sum of quantity X unit price for each variable input |
example: wages paid to workers
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Average Variable Costs
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variable costs per unit
FORMULA: AVC=AVC/QUANTITY (OUTPUT) |
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Total Cost
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FORMULA:
TFC + TVC = total costs Costs of ALL outputs |
ALL
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Average Total Costs
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FORMULA:
TC/quantity=ATC Total costs per unit of output |
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Marginal Costs
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Change in total cost resulting from one unit rise in output
-may become greater than price MC=change in TC/ quantity |
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AFC curve
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declines because as output increases the tfc gets divided into more and more units
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MC curve
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slopes more and more outward
because the plant reaches its production capacity -rises because its harder for the firm to produce more output because it is already producing its max |
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ATC curve
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ALWAYS U-shaped because AFC will be high for small rates of output and MC will be high as the plants production capacity is approached
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High AFC
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High ATC
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High MC
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High ATC
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Law of Diminishing Returns
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As more units of a variable resource are applied to a fixed resource, output will EVENTUALLY INCREASE by a smaller and smaller amount
-MC will rise in output -MC will exceed ATC BEFORE: MC is below bringing down ATC |
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Intersection of MC and ATC
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lowest cost to make
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Total Product
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how much output we can make
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Marginal Product
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additional 1 unit, how much extra
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Average Product
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Total Product divided by number of units of variable output
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Long Run Average Total Cost Curve
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LRATC shows the minimum average cost of producing each output level when a firm is able to choose a plant size
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LRATC graph
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all minimum possible at all the possible degrees of scale
HOW LARGE A PLANT IS |
big smile-like curve
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Economies of Scale
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reductions in per unit costs as output expands
EXAMPLES: mass production:lower per unit costs specialization improvements in production as a result of experiance |
left side of curve, L
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Diseconomies of scale
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increases in per unit costs as output expands
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right side of curve,J
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Constant Returns of Scale
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unit is constant
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flat middle region
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What Causes Cost Curves To Shift
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prices of resources
taxes regulations technology |
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Sunk Costs
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cost you pay that cant be changed
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