77 terms

# Econ 101 (Ch. 7,8,9, and part 15)

#### Terms in this set (...)

What is profit?
Total revenue minus total cost
What is the equation for profit?
P= TR-TC
an organization owned and operated by private individuals that specialize in production
What is production?
the process of combining inputs to make goods and services
What is technology?
methods available for combining inputs to produce a good or service (turns inputs into outputs)
What is the long-run in economic terms?
time horizon long enough for a firm to vary all of its imputs
What is a variable input?
inputs that can be adjusted up or down as desired (only in long run decisions)
What is a fixed input?
inputs over certain time period that cannot be adjusted, even if a firm's output level changes (short run decisions)
What is total product?
max quantity of output that can be produced from a given combo of inputs
What is marginal product of labor?
the additional output produced when one more worker is hired
What is the equation for marginal product of labor?
MPL= change in quantity/ change in labor
(change in total product/change in number of workers)
What is the definition of increasing marginal returns to labor?
the marginal product of labor increases as more labor is hired
What is the definition of diminishing marginal returns to labor?
the marginal product of labor decreases as more labor is hired
What is the Law of Diminishing Marginal Returns?
as we continue to add more of any one input, marginal product will eventually decline
What is a sunk cost?
A cost that has been paid or must be paid, regardless of any future action.
What is the Least-Cost Rule?
a firm produces any given output level using the lowest combo of inputs available.
What is a fixed cost?
costs of a firm's fixed inputs
What is a variable cost?
costs of a firm's variable inputs
What is total fixed cost?
the cost of al inputs that are fixed in the short run
What is total variable cost?
cost of all variable inputs used in producing a particular level of output
What is total cost?
sum of all fixed and variable costs
What is the equation for total cost?
TC= TFC + TVC
What is average fixed cost?
total fixed cost divided by the quantity of output produced
What is the equation for average fixed cost?
AFC= TFC/Q
What is average variable cost?
total variable cost divided by the quantity of output produced
What is the equation for average variable cost?
ATC= TVC/Q
What is average total cost?
total cost divided by the quantity of output produced
What is the equation for average total cost?
ATC=TC/Q
What is marginal cost?
the increase in total cost from producing one more unit of output
What is the equation for marginal cost?
MC= change in total cost/ change in quantity
What is the definition of long-run total cost?
the cost of producing each quantity of output when all inputs are variable and the least-cost input mix is chosen (LRTC<or equal to TC)
What is long-run average total cost?
the cost per unit of producing each quantity of output in the long-run, when all inputs are variable
(LRATC< or equal to ATC)
What is a plant?
the collection of fixed inputs at a firm's disposal
What is the definition of economies of scale?
long-run average total cost decreases as output increases
What is the definition of lumpy input?
an input whose quantity cannot be increased gradually as output increases, but must instead be adjusted in large jumps
What is the definition of diseconomies of scale?
long-run average total cost increases as output increases
What is the definition of constant returns to scale?
long-run average total cost is unchanged as output increases
What is the definition of minimum efficient scale?
the lowest output level at which the firm's LRATC curve hits bottom
What is accounting profit?
TR- Accounting costs (explicit costs)
What is economic profit?
TR-all costs of production
(TR-implicit and explicit costs)
What type of profit should be focused on when making business decisions?
economic profit
What is the definition of a demand curve facing the firm?
a curve that indicates, for different prices, the quantity of output that customers will purchase from a particular firm
What is total revenue?
the total inflow of receipts from selling a given amount of output
What is a loss?
the difference between TC and TR when TC>TR
What is marginal revenue?
the change in total revenue from producing one more unit of output
What is the equation for marginal revenue?
change in TR/change in Q
What is the definition of marginal approach to profit?
A firm maximizes its profit by taking any action that adds more to its revenue than to its cost
What is the Shutdown Rule?
Short run-- firm should continue to produce if total revenue exceeds total variable cost (otherwise shut down)
What is the definition of exit?
a permanent cessation (end) of production when a firm leaves an industry
What is the definition of market structure?
the characteristics of a market that influence how trading takes place
What is perfect competition?
the horizontal demand curve
In a perfectly competitive firm, how do you figure the marginal revenue?
MR= market price
In a perfectly competitive firm, how do you figure the market price?
market price= MR
What is the definition of a price taker?
a firm that treats the price of its product as given and beyond its control
What is the equation for profit per unit?
Profit per unit= P - ATC
What is the shutdown price?
the price at which a firm is indifferent between producing and shutting down
In a perfectly competitive firm, in the short-term, the demand curve equals what?
demand curve= MR
In a perfectly competitive firm, in the short-term, marginal revenue equals what?
MR= demand curve
What is the definition of a firm's supply curve?
a curve that shows the quantity of output a competitive firm will produce at a different price
What is the market supply curve?
a curve indicating the quantity of output that all sellers in a market will produce at different prices in the short-run
What is a normal profit?
another name for zero economic profit
What is constant cost industry?
an industry in which the long-run supply curve is horizontal because each firm's cost curves are unaffected by changes in industry output
What is long-run supply curve?
a curve indicating price and quantity combos in an industry after all long-run adjustments have taken place
What is the definition of increasing cost industry?
an industry in which the long-run supply curve slopes upward because each firm's LRATC curve shifts upward as industry output increases
What is the definition of decreasing cost industry?
an industry in which the long-run supply curve slopes downward because each firm's LRATC curve shift downward as industry output increases
When MPL rises what falls?
MPL rises, MC falls
When MPL falls what rises?
MPL falls, MC rises
The vertical distance on a graph between what two curves equals the AFC?
distance between ATC and AVC
Where does the MC curve cross the ATC curve and AVC curve?
MC curve crosses at minimum points
When is profit maximized?
When MR=MC
In the short run when should a firm keep producing?
when TR is greater than TVC at some point
What does the demand curve of a perfectly competitive firm look like?
Horizontal.
demand= MR when?
when perfectly competitive (demand is horizontal) OR MR is same as market price
(same thing)
Graphically, how do you find a firm's profit per unit?
The difference between the firm's demand curve (horizontal when perfectly competitive) and the ATC
In the short run, when should you shutdown?
if TR<TVC
In a perfectly competitive firm, what is the shutdown price?
when P<AVC (Price is MR)
What is a public good?
a public good is a good that is nonrival in consumption (can consume good simultaneously)