Term
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Definition
| payments to nonowners of a firm for their resources |
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Term
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| the opportunity cost of using resources owned by the firm |
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| total revenue minus explicit and implicit costs |
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| the minimum profit necessary to keep a firm in operation. total revenue equals its total opportunity cost |
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| any resource for which the quantity cannot change during the period of time under consideration |
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Term
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Definition
| any resource for which the quantity can change during the period of time under consideration |
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Term
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Definition
| a period of time so short that there is at least one fixed input |
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Definition
| a period of time so long that all inputs are variable |
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Term
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Definition
| the relationship between the maximum amounts of output that a firm can produce and carious quantities of inputs |
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Term
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Definition
the change in total output produced by adding one unit of variable input with all other inputs used being held constant
change in total profit/change in labor
change in quantity/ change in labor |
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Term
| law of diminishing returns |
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Definition
| the principle that beyond some point the marginal product decreases as additional units of variable factor are added to fixed factor |
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Term
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Definition
| costs that do not vary as output varies and that must be paid even if output is zero. these are payments that the firm must make in the short run regardless of the level of output |
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Term
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Definition
| costs that are zero when output is zero and vary as output varies |
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Term
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Definition
| the sum of total fixed cost and total variable cost at each level of output |
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Term
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Definition
| the change in total cost when one additional unit of output is produced |
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Term
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Definition
| a classification system for the key traits of a market, including the number of firms, the similarity of the products they sell, and the ease of entry into and exit from the market |
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Term
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Definition
a market structure characterized by 1) a large number of small firms, 2) a homogeneous product, 3) very easy entry into or exit from the market. also called pure competition
(each seller is a price taker, and in the long run EP=0 (normal))
demand curve is horizontal |
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Term
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Definition
| a seller that has no control over the price of the product it sells |
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Term
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Definition
| the change in total revenue from the sale of one additional unit of output |
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Definition
| starts with lots of competition, then a few sellers, then a monopoly, one seller |
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Term
| rules for profit maximization |
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Definition
1) MR greater than MC, as the quantity increases, the total profit increases
2) MR is less than MC, as quantity decreases the total profit increase
3) MR=MC quantity is constant and total profit is at it's max |
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Term
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Definition
| equals slope of total cost |
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Term
| rules of the marginal approach method to profit maximization |
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Definition
1) MR=MC
2) MP=MR-MC=0
3) slope TR= slope of TC |
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Term
| total approach to profit maximization |
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Definition
slope of TR=slope of TC
MR=MC |
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Term
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Definition
| when the price level is below the average variable cost |
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Term
| if price is greater than average variable cost what do you do? |
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Definition
| keep open, positive profit |
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Term
| if the graph is above the shut down point what do you do? |
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Definition
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Term
| if price is equal to the average variable cost what do you do? |
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Definition
| well, that means EP=0, normal profit so yes/no |
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Term
| what do you do if the p is between the shut down and break even |
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Definition
| AVC is greater than p but ATC is less, making negative EP, but if P is still greater than AVC stay open |
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Term
| what does it mean if TR=TVC |
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Definition
| that there is no money to pay for the the TFC. open or closed lose the same amount of money, called indifference |
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Term
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Definition
| shut down point, shut down |
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Term
| what is a competitive firms supply curve |
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Definition
| its own marginal cost curve, only the portion above the average cost minimum point |
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Term
| when moving from short run to long run what happens |
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Definition
market/industry: price goes down, movement right along the demand curve, shifting the supply curve rightward
when EP is greater than 0 other firms will enter so supply will go up and price down until the long run
in the long run people will exit the market, supply will go down and price up until p=ATC |
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Term
| the three different types of p/c firms |
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Definition
1) constant cost--EP is positive, more firms will enter until p is back to equilibrium price
2) increasing cost--upward sloping long run supply
3) decreasing cost |
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