Chapter 9, 10, 11 Flashcards
Implicit Costs
Opportunity costs
Explicit Costs
Cash transactions–food, workers, facilities
Accounting profit
Total explicit costs-total sales revenue
$0 is a profit because you broke through!
Normal profit
Typcial amount of accounting profit earned—$0
Economic profit
Revenue-explicit-implicit
TP
total product, quantity, output
MP
extra output
change in total product/change in labor input
AP
total product/units of labor
Law of diminishing returns
less and less benefit with each worker after a certain point c
Marginal product intersects average product at
the maximum of average product
Marginal cost intersects average cost at
the minimum because once the cost is above the average, the average will go up
MC intersects AC at
minimum
TC increases because of
the law of diminishing returns
ATC=
AVC+AFC
The greatest profit is when
the slope of TC and TR are the same
Perfect competition
- many firms
- standard product
- price takers
- easy entry and exit
Profit maximizing
in the short run, firms are price takers so they will produce where mr=mc
the shut down point is the
minimum of the AVC
If the price is above the ATC
profit
If the price is at the ATC
0 profit
If the price is below the ATC
loss
IN THE SHORT RUN FIRMS WILL PRODUCE WHERE
MR=MC
Long run
all costs are variable and there is easy entry and exit
Long run equilibrium
No more firms will enter or exit and Mr. Darp will intersect the ATC minimum
Productive efficiency
producing at the minimum ATC
Allocative efficiency
P=MC
Perfectly competitive firm is
productively efficient and allocatively efficient
Socially optimal
MC=price or demand
Determining elasticity on a graph
Left of where MR intersects the x axis is elastic, where it intersects is unit elastic and right is inelastic
Perfect price discrimination is when
MR=D
