10.9 Flashcards
What is Consumer Surplus?
Excess benefit received from a good over the amount paid for the good. What you are willing to pay vs. what you really paid.
How do you find the area of Consumer Surplus?
A = 1/2 B(ase)H(eight)
How do you find the Market Demand?
Add all of the individual demands together
How do you find the Market Consumer Surplus?
Add all of the consumer surpluses together.
What is a firm?
Institution that hires factors of production and organizes them to produce and sell goods.
What is a firms goal?
To maximize profits.
How do Profit and Economic Profit differ?
Profit is only concerned with revenue and cost, while Economic Profit also takes into account the Opportunity Cost of Production.
What is the Opportunity Cost of Production?
The value of the best alternate use of the firm’s funds.
What resources goes into the Opportunity Cost of Production?
Resources bought in the Market, Resources owned by the firm, and Resources supplied by the firms owners.
What is an example of a Resource Bought in the Market?
Labor, Supplies. Anything that you have to buy to do the job.
When we say that the firm is using its own resources, what are we talking about?
The Implicit Rental Rate
What are the two factors that go into the Implicit Rental Rate?
Economic Depreciation and Interest Foregone.
What is Economic Depreciation?
The change in the market value of capital over time. i.e. Buying a tractor and having its value decrease over time.
What is Interest Foregone?
The return of the funds that we used to acquire capital. i.e. leaving money in the bank and having it gain interest.
What are the Resources supplied by the firm’s owner?
Entrepreneurship and Labor.
