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30 Cards in this Set
- Front
- Back
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The economic goal of a firm is to:
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Maximize Profits
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The amount a firm recieves for the sale of its output
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Total Revenue
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The market value of the inputs a firm uses in production
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Total Cost
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The firms total revenue minus its total cost
(TR-TC=?) |
Profit
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Includes all the opportunity costs of making its output of goods and services.
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cost of production
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input costs that require a direct outlay of money by the firm.
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explicit costs
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input costs that do not require an outlay of money by the firm.
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implicit costs
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total revenue minus total cost, including both explicit and implicit costs, measured by economists
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economic profit
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the firm’s total revenue minus only the firm’s explicit costs, measured by accountants
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accounting profit
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When total revenue exceeds both explicit and implicit costs, the firm earns
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economic profit
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shows the relationship between quantity of inputs used to make a good and the quantity of output of that good.
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production function
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the increase in output that arises from an additional unit of that input
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marginal product
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the property whereby the marginal product of an input declines as the quantity of the input increases.
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diminishing marginal product
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The relationship between the quantity a firm can produce and its costs determines pricing decisions.
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total cost curve
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costs that do not vary with the quantity of output produced
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fixed costs
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costs that do vary with the quantity of output produced.
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variable costs
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Total Fixed Costs (TFC) + Total Variable Costs (TVC) =
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Total Costs (TC)
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can be determined by dividing the firm’s costs by the quantity of output it produces and is the cost of each typical unit of product.
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average costs
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Fixed Cost / Quantity
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Average Fixed Cost
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Variable Cost / Quantity
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Average Variable Cost
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Total Cost / Quantity
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Average Total Cost
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the increase in total cost that arises from an extra unit of production.
change in total cost / change in quantity |
marginal cost
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U-shaped curve
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Average Total Cost curve
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The bottom of the U-shaped ATC curve occurs at the quantity that minimizes average total cost. This quantity is sometimes called the
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efficient scale
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Whenever marginal cost is less than average total cost, average total cost is
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falling
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The marginal-cost curve crosses the average-total-cost curve at the
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efficient scale
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In the long run, fixed costs become
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variable costs
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the property whereby long-run average total cost falls as the quantity of output increases.
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economies of scale
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the property whereby long-run average total cost rises as the quantity of output increases.
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diseconomies of scale
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the property whereby long-run average total cost stays the same as the quantity of output increases
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constant returns to scale
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