Chapter 7: Producers in the Short Run Flashcards
Single proprietorship
A firm that has one or more owner who is personally responsible for the firm’s actions and debts
Ordinary parternship
A firm that has two or more joint owners, each of whom is personally responsible for the firm’s actions and debts
Limited partnership
A firm that has:
1) General partners who manage the firm and are personally liable for the firm’s actions and debts
2) Limited partners who only risk the money they have personally invested
Corporation
A firm that has a legal existence separate from that of the owners
State-owned enterprise
A firm that is owned by the government (Crown corporations in Canada)
Non-profit organisations
Firms that provide goods and services with the objective of just covering their costs
Multinational enterprises (MNEs)
Firms that have operations in more than one country
Dividends
Profits paid out to shareholders of a corporation
Bond
A debt instrument carrying a specified amount, a schedule of interest payments, and a debt for redemption of its face value
Intermediate products
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
The difference between the revenues received from the sale of output and the opportunity cost of the inputs used to make the output. Negative economic profits are called economic losses
Short run
A period of time in which the quantity of some inputs cannot be increased beyond the fixed amount that is available
Fixed factor
An input whose quantity cannot be changed in the short run
Variable factor
An input whose quantity can be changed over the time period under consideration
Long run
A period of time in which all inputs may be varied, but the existing technology of production cannot be changed
Very long run
A period of time that is long enough for the technological possibilities available to a firm to change
Total product (TP)
Total amount produced by a firm during some time period
Average product (AP)
Total product divided by the number of units of the variable factor used in its production
Marginal product (MP)
The change in total output that results from using one more unit of a variable factor
Law of diminishing returns
The hypothesis that if increasing quantities of a variable factor are applied to a given quantity of fixed, the marginal product of the variable factor will eventually decrease
Total cost (TC)
The total cost of producing any given level of output
TC = TFC + TVC
Total fixed cost (TFC)
All costs of production that do not vary with level of output
Total variable cost (TVC)
Total costs of production that vary directly with the level of output
Average total cost (ATC)
Total cost of producing a given output divided by the number of units of output; also the sum of AFC and AVC
ATC = TC/Q ATC = AFC + AVC
Average fixed cost (AFC)
Total fixed cost divided by the number of units of output
AFC = TFC/Q
Average variable cost (AVC)
Total variable cost divided by the number of units of output
AVC = TVC/Q
Marginal cost (MC)
The increase in total cost resulting from increasing output by one unit
MC = (Change in)TC / (Change in)Q
