Terms in this set (28)
Accounting profit is the monetary costs a firm pays out and the revenue a firm receives. It is the bookkeeping profit, and it is higher than economic profit. Accounting profit = total monetary revenue- total costs. Economic profit is the monetary costs and opportunity costs a firm pays and the revenue a firm receives.
Economic Profit (Or Loss)' The difference between the revenue received from the sale of an output and the opportunity cost of the inputs used. This can be used as another name for "economic value added" (EVA).
Total cost refers to the total expense incurred in reaching a particular level of output; if such total cost is divided by the quantity produced, average or unit cost is obtained. A portion of the total cost known as fixed cost—e.g., the costs of a building lease or of...
Total Fixed Cost
Total fixed cost is one part of total cost. The other is total variable cost. At any and all levels of output, fixed cost is the same. It includes cost that is not dependent on, or is unrelated to, production. The best way to identify fixed cost is to produce zero output.
Total Variable Cost
Total variable cost is the opportunity cost incurred in the short-run production that depends on the quantity of output. As the name clearly implies, total variable cost is variable, it changes. If a firm produces a little output, then total variable cost is less.
Total revenue is the total receipts of a firm from the sale of some given quantity's of a product. It can be calculated as the selling price of the firm's product times the quantity sold, i.e. total revenue = price × quantity, or letting TR be the total revenue function:
Average revenue is the revenue generated per unit of output sold. It plays a role in the determination of a firm's profit. Per unit profit is average revenue minus average (total) cost. A firm generally seeks to produce the quantity of output that maximizes profit.
the cost added by producing one extra item of a product.
In microeconomics, marginal revenue (R') is the additional revenue that will be generated by increasing product sales by one unit. It can also be described as the unit revenue the last item sold has generated for the firm.
Average Fixed Cost
Average fixed cost is a per-unit-of-output measure of fixed costs. As the total number of units of the good produced increases, the average fixed cost decreases because the same amount of fixed costs is being spread over a larger number of units of output.
Average Variable Cost
In economics, average variable cost (AVC) is a firm's variable costs (labor, electricity, etc.) divided by the quantity of output produced. Variable costs are those costs which vary with output.
Average Total Cost
Average total cost is the total cost per unit of output incurred when a firm engages in short-run production. It can be found in two ways. Because average total cost is total cost per unit of output, it can be found by dividing total cost by the quantity of output.
the ability of an object or material to resume its normal shape after being stretched or compressed; stretchiness.
In economics, the cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good. It is measured as the percentage change in demand for the first good that occurs in response to a percentage change in price of the second good.
In economics, income elasticity of demand measures the responsiveness of the demand for a good to a change in the income of the people demanding the good, ceteris paribus. It is calculated as the ratio of the percentage change in demand to the percentage change in income.
Price elasticity of supply (PES or Es) is a measure used in economics to show the responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its price.
Marginal utility is an important economic concept because economists use it to determine how much of an item a consumer will buy. Positive marginal utility is when the consumption of an additional item increases the total utility.
Utility Maximization Rule
To obtain the greatest utility the consumer should allocate money income so that the last dollar spent on each good or service yields the same marginal utility.
Least Cost Rule
That is the cost of any output is minimized when the ratios of marginal product to price of the last units of resources used are the same for each resource.
Profit Maximization Rule(Purchasing finished products
The marginal resource cost is the additional cost incurred by employing one more unit of the input. It is calculated by the change in total cost divided by the change in the number of inputs. In a competitive resource or input market, we assume that the firm is a small employer in the market. In other words, the firm will not be able to affect the price of the input regardless of the number of inputs employed. This is much like a firm in a competitive output market that is too small to affect the price; therefore, it is a price-taker. Under these market conditions, the marginal resource cost is the price of the input, say wages (w), since the additional cost of employing one more unit of the input is just the price of the input.
Profit Maximization (purchasing one type of resource)
Comparing the marginal revenue product to the marginal resource cost, we should employ 3 units of labor. In our practice problem, the price of the output is only $4 rather than $5. As a result, the marginal revenue product decreases. In addition to the price of the output changing the marginal revenue product, these other factors will also change the marginal revenue product for labor: human capital - as workers gain additional education or skills that increase their productivity the marginal revenue product; capital - as the amount of capital, such as machinery, available to workers increases, we would anticipate the MRP for labor to increase. Likewise, if workers are able to work with better equipment through increases in technology, the productivity of workers increases.
Profit Maximization Rule (Purchasing two different types of resources)
If the firm is a price maker in the product market, price is not equal to marginal revenue. Since marginal revenue is less than price, the demand for the resources will decline faster as the price of the input increases. The table on the right shows the quantity of labor demanded in a perfectly competitive market (pc) where price equals marginal revenue and the quantity of labor demanded when the firm is a price maker in the product market (pm).
'Economic Profit (Or Loss)' The difference between the revenue received from the sale of an output and the opportunity cost of the inputs used. This can be used as another name for "economic value added" (EVA).
Normal profit is an economic condition occurring when the difference between a firm's total revenue and total cost is equal to zero. Simply put, normal profit is the minimum level of profit needed for a company to remain competitive in the market.
Marginal Revenue Product
Marginal revenue product is the additional revenue generated by the use or employment of an extra variable input. It is closely related to the concept of marginal product (or marginal physical product). Marginal physical product indicates how much total production changes by employing another unit of variable input.
Total Profit/Loss Per Unit
The best way to ensure that your pricing is competitive without pricing products too low for your business to survive is to understand your costs and the profit per piece. Once you can calculate how much you earn per piece, you can control your profits and ensure that you cover the basic operating expenses.
Marginal Resource Cost
To answer this question, we would compare the marginal revenue product (MRP) to the marginal resource cost (MRC) of $20. If the MRP is greater than or equal to the MRC then we should employ the resource. If the MRP is less than the MRC, we should employ fewer resources.
Tax revenue is the income that is gained by governments through taxation.