Ch. 15 Entry and Exit Flashcards
Accounting Profit
The total revenue a business receives, less its explicit financial costs
Total Revenue - Explicit Financial Costs
Economic Profit
The total revenue a firm receives
Total Revenue - Explicit Financial Costs - Implicit Opportunity Costs
Average Revenue
Revenue per unit
Total Revenue/Quantity=Price
Average Cosy
Costs per unit
Total Costs/Quantity Produced
Profit Margin
Profits per unit sold
Average Revenue - Average Cost
Short Run
The horizon over which the production capacity and the number and type of competitors you face cannot change
Long Run
The horizon over which you or your rivals may expand or contract production capacity, and new rivals may enter the market or existing firms may exit
Rational Rule for Entry
Enter a new market if you expect to earn a positive economic profit, which occurs when the price exceeds your average cost
Rational Rule for Exit
Exit a market if you expect to earn a negative economic profit, which occurs if the price is less than your average costs
Free Entry
When there are no factors making it particularly difficult or costly for a business to enter or exit an industry
Barriers to Entry
Obstacles that make it difficult for new firms to enter a market
Switching Costs
An impediment that makes it costly for customers to switch to buying from another business
