Ch 13 terms Flashcards
define theory of the firm
firms goal is to max profit
define industrial organization
how firms choices for P and Q depend on market conditions
define explicit costs
$ spent by firm on materials, equipment, rent, etc
define implicit cost
no cash - opportunity cost for time and money elsewhere
define economic profit
total revenue minus exp and imp costs
define accounting profit
total revenue - explicit costs
which is bigger: econ profit or accounting profit
accounting profit
doesn’t include implicit costs
what is a production function
graph representing diminishing returns on Q of input vs Q of output
define fixed factor
part of production process unaffected by production changes
define variable factor
part of production affected by production changes.
define fixed cost
costs not changed by Q of output (rent)
define variable cost
costs affected by Q of output (wages)
what is ATC
average total cost
consists of avg fixed and avg variable cost
ATC formula
total costs/#Q produced
average fixed cost formula
fixed cost: # output
average variable cost formula
variable cost/# output
define marginal cost
cost of increasing production by one unit
marginal cost formula
change in total cost/change in #
where do marginal cost and average total cost intersect on cost curve graph
at minimum
most efficient, not profit maxing
what is the shape of ATC curve
U shape
what is the short run of ATC
period in which no cost changes occur
new short run starts when change is made
what is the long run of ATC
short run curves’ movements averaged together
shape of economies of scale line on graph
decline as output rises
happens in lower quantities
shape of DISeconomies of scale line on graph
rises with output rise
happens with higher quantities
