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30 Cards in this Set

  • Front
  • Back
The economic goal of a firm is to:
Maximize Profits
The amount a firm recieves for the sale of its output
Total Revenue
The market value of the inputs a firm uses in production
Total Cost
The firms total revenue minus its total cost

Includes all the opportunity costs of making its output of goods and services.
cost of production
input costs that require a direct outlay of money by the firm.
explicit costs
input costs that do not require an outlay of money by the firm.
implicit costs
total revenue minus total cost, including both explicit and implicit costs, measured by economists
economic profit
the firm’s total revenue minus only the firm’s explicit costs, measured by accountants
accounting profit
When total revenue exceeds both explicit and implicit costs, the firm earns
economic profit
shows the relationship between quantity of inputs used to make a good and the quantity of output of that good.
production function
the increase in output that arises from an additional unit of that input
marginal product
the property whereby the marginal product of an input declines as the quantity of the input increases.
diminishing marginal product
The relationship between the quantity a firm can produce and its costs determines pricing decisions.
total cost curve
costs that do not vary with the quantity of output produced
fixed costs
costs that do vary with the quantity of output produced.
variable costs
Total Fixed Costs (TFC) + Total Variable Costs (TVC) =
Total Costs (TC)
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.
average costs
Fixed Cost / Quantity
Average Fixed Cost
Variable Cost / Quantity
Average Variable Cost
Total Cost / Quantity
Average Total Cost
the increase in total cost that arises from an extra unit of production.

change in total cost / change in quantity
marginal cost
U-shaped curve
Average Total Cost curve
The bottom of the U-shaped ATC curve occurs at the quantity that minimizes average total cost. This quantity is sometimes called the
efficient scale
Whenever marginal cost is less than average total cost, average total cost is
The marginal-cost curve crosses the average-total-cost curve at the
efficient scale
In the long run, fixed costs become
variable costs
the property whereby long-run average total cost falls as the quantity of output increases.
economies of scale
the property whereby long-run average total cost rises as the quantity of output increases.
diseconomies of scale
the property whereby long-run average total cost stays the same as the quantity of output increases
constant returns to scale