chapter 7 Flashcards
firms
a business concern, especially one involving a partnership of two or more people
single proprietorship
firm w/one owner who is personally responsible for the firm’s actions/debts
ordinary partnership
firm w/2 or more joint owners
limited partnership
firm w/2 classes of owners: general and limited
general = managers and liable for firm’s actions/debts
limited = only risk is money they have invested
corporation
firm that has a legal existence separate from that of the owners
state-owned enterprise
firm owned by the gov’t
non-profit
first that provide goods and services with the objective of just covering their costs; aka NGOs
multinational enterprises
firms w/operations in more than one country
dividends
profits paid out to shareholders of a corporation
bond
debt instrument carrying a specified amount, a schedule of interest payments, and usually a date for redemption of its face value
2 assumptions about firms
- they are profit maximizers
2. each firm is a single, consistent decision-making unit
what are the 4 categories of inputs?
- outputs from some other firm
- provided by nature
- services of workers/managers
- services from physical capital (e.g. facilities, machines)
intermediate product
all outputs that are used as inputs by other producers in a further stage of production
production function
a functional relation showing the maximum output that can be produced by any given combination of inputs
economic profits
difference between the revenues received from the sale of output and the opportunity cost of the inputs used to make the output
what’s a negative economic profit?
economic loss
formula for accounting profits?
= revenue - explicit costs
what’s an explicit cost?
involve a purchase of goods/services by the firm
what’s an implicit cost?
items for which there is no market transaction but for which there is still an opportunity cost (time and capital)
formula for economic profit?
revenues - (explicit costs + implicit costs)
= accounting profits - implicit costs
short run
period of time in which the qtty of some inputs can’t be increased beyond the fixed amount that is available
fixed factor
input whose qtty can’t be changed in the short run
variable factor
input whose qtty can be changed over the time period under consideration
long run
period of time in which all inputs may be varied, but the existing tech of production can’t be changed
economic profits/losses play a crucial signaling role in….
workings of a free-market system
very long run
period of time that’s long enough for the tech possibilities available to a firm to change
total product (TP)
total amount produced by a firm during some time period
average product
total product divided by # units of the variable factor used to produce it
TP/L
marginal product
change in total output that results from using one more unit of a variable factor
law of diminishing returns
if increasing quantities of a variable factor are applied to a given quantity of fixed factors, the marginal product of the variable factor will eventually decrease
if increasing quantities of a variable factor are applied to a given quantity of fixed factors, the average product of the variable factor will eventually (increase/decrease)
decrease
total cost
total cost of producing any given level of output; can be divided into total fixed and total variable cost
total fixed cost
all costs of production that do not vary with the level of of output
total variable cost
total costs of production that vary directly with the level of output
average total cost
total cost of producing a given output divided by the number of units of output; can also be calculated as the sum of average fixed costs and average variable costs (unit or avg cost)
average fixed cost
total fixed cost divided by the number of units of output
average variable cost
total variable cost divided by the number of units of output
marginal cost
increase in total cost resulting form increasing output by one unit
diminishing average product of the variable factor implies eventually (increasing/decreasing) variable cost
increasing
eventually diminishing marginal product of the variable factor implies eventually (increasing/decreasing) marginal costs
increasing
what’s a firm’s profit?
difference between its total revenue and its total costs
what does a production function relate?
inputs of factor services to output
capacity
upper limit that cannot be exceeded
