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12 Cards in this Set
- Front
- Back
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What is a firm’s goal? |
To maximize economic profit. |
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How does a firm calculate economic profit? |
Total revenue minus total cost measured as the opportunity cost of production. |
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What is the difference between the short run and the long run? |
Short run: quantity of at least one factor of production is fixed and the quantities of other factors can be varied. Long run: all quantities of all factors of production can be varied. |
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What initially happens to the marginal product of labour as the quantity of labour increases? Why? |
It increases because of increased specialization and the division of labour. |
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What eventually happens to marginal product as the quantity of labour increases? |
It diminishes because an increasing quantity of labour must share a fixed quantity of capital. |
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A perfectly competitive firm is a price _______. A perfectly competitive firm’s marginal revenue always equals the market ________. |
Taker, price |
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The firm produces the output at which marginal revenue (price) equals marginal ______. |
Cost |
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The firm produces the output at which marginal revenue (price) equals marginal ______. |
Cost |
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When will a firm temporarily shut down? |
If price is less than minimum average variable cost. |
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At prices above minimum average variable cost, a firm’s supply curve is its _______ ______ curve. |
Marginal cost |
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What does the market supply curve show? |
The sum of the quantities supplied by each firm at each price. |
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What 2 factors determine price? |
Market demand and market supply. |
