MicroEconomics Chapter 13
Terms
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- 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
(TR-TC=?) - Profit
- 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
- falling
- 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