Chapter 7 Flashcards
What is accounting profit?
Total revenue minus explicit costs
What does L represent in economics?
Variable inputs
What is the first step to determine total cost?
Identify inputs for output
What is average cost?
Total cost / Quantity
How are total costs calculated?
Total costs equal fixed costs plus variable costs.
What is Average Total Cost?
Total Cost / Quantity
What indicates a firm’s profit margin?
Market price vs average cost
What do firms do as labor costs increase?
Shift to less expensive inputs
What is constant returns to scale?
Average cost does not change
What determines the effectiveness of countries in agglomeration economies?
Ability to benefit and minimize diseconomies
What is likely if demand is less than LRAC minimum?
Single-producer monopoly
What does production involve?
Converting inputs to outputs
What is economic profit?
Total revenue minus total cost
What does labor mean in production?
Human effort
What does K represent in economics?
Fixed inputs
What do factor payments represent from a firm’s perspective?
Costs
What does increased specialization lead to?
Increasing marginal productivity
What must total revenue exceed for a firm to earn a profit?
Total costs
What happens if market price is below average cost?
Negative profits
What type of production technologies do multinational employers use in high-wage economies?
More machines, fewer workers
What does the long-run average cost curve represent?
Least expensive average cost
What do economies of scale refer to?
Long-run average cost curve.
What do cities provide for businesses?
Large group of customers
What are explicit costs?
Out-of-pocket costs
What is the Law of Diminishing Marginal Product?
Short run production characteristic
What do factor payments represent from the owner’s perspective?
Income
What is the total cost composed of?
Fixed costs + Variable costs
What units are marginal cost, average cost, and average variable cost measured in?
Dollars per unit
What type of production technologies do multinational employers use in lower-wage countries?
More workers, less machinery
Why do overly large factories struggle?
High production costs
What determines true economic profit?
Explicit + implicit costs.
What does capital refer to in economics?
Physical capital
What is treated as a ‘cost’ for entrepreneurs?
Profit
What are fixed costs?
Costs of fixed inputs
What is diminishing marginal productivity?
Less output from inputs
What may happen to a popular website with a large rise in visitors?
Overwhelm the website
Which stores exemplify economies of scale?
Costco, Walmart
What is the relationship between short-run average cost (SRAC) curves and long-run average cost (LRAC) curves?
LRAC is the lowest cost for each output when fixed costs vary; it’s formed by the bottom edge of the SRAC curves.
What do firms do when in the diseconomies region?
Shrink operations
How might information and communications technology affect market structure?
Increase small competitors OR create winner-take-all markets
What is a production function?
Relationship between inputs and outputs
Do fixed costs change with the level of production?
No
What can firms analyze to understand profit earning?
Total costs: fixed and variable
