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42 Cards in this Set

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Residental Claimants
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?
Contracting
owners contract with individual workers who work independantly

hiring someone who doesn't exactly work for u
lawnmower guys, pool guys
Team Production
Workers are hired by a firm to work together under supervision
team
Principal-Agent Problem
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
good for principals?
Proprietorship
-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
Partnership
-owned by 2 or more persons
-8% of the firms 10% of the business revenues
UNLIMITED LIABILITY
2 or more people
complete liability
Coporation
-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
Shirking
slacking off
explicit costs
monetary payment is made
money
implicit costs
resources owned by the firm thats don't involve monetary payment
everything else: opportunity costs, times,
Economic Profit
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
Accounting profit
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
Zero economic profit
isnt a bad thing because the owners receive the same amountof profit rate
earning no more or no less
earning the same
Short Run
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
Long Run
long enough to where the firm can change
-firms can enter and exist freely
Fixed costs
stay the same, constant
Variable costs
vary
Total Costs
implicit + explicit costs
Total fixed costs
costs that remain the same no matter what. don't change. stay constant.
example: property taxes, insurance premiums
Average fixed costs
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?
Total Variable Costs
sum of costs that inclease as output increases
TVC=sum of quantity X unit price for each variable input
example: wages paid to workers
Average Variable Costs
variable costs per unit
FORMULA:
AVC=AVC/QUANTITY (OUTPUT)
Total Cost
FORMULA:
TFC + TVC = total costs
Costs of ALL outputs
ALL
Average Total Costs
FORMULA:
TC/quantity=ATC
Total costs per unit of output
Marginal Costs
Change in total cost resulting from one unit rise in output
-may become greater than price
MC=change in TC/ quantity
AFC curve
declines because as output increases the tfc gets divided into more and more units
MC curve
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
ATC curve
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
High AFC
High ATC
High MC
High ATC
Law of Diminishing Returns
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
Intersection of MC and ATC
lowest cost to make
Total Product
how much output we can make
Marginal Product
additional 1 unit, how much extra
Average Product
Total Product divided by number of units of variable output
Long Run Average Total Cost Curve
LRATC shows the minimum average cost of producing each output level when a firm is able to choose a plant size
LRATC graph
all minimum possible at all the possible degrees of scale
HOW LARGE A PLANT IS
big smile-like curve
Economies of Scale
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
Diseconomies of scale
increases in per unit costs as output expands
right side of curve,J
Constant Returns of Scale
unit is constant
flat middle region
What Causes Cost Curves To Shift
prices of resources
taxes
regulations
technology
Sunk Costs
cost you pay that cant be changed