Econ 101 chapter 8 Flashcards
business firm
an entity that employs factors of production to produce goods and services to be sold to consumers, other firms, or the government
market coordination
the process in which individuals perform tasks such as producing goods on the basis of changes in the market forces
managerial coordination
the process which managers direct employees to perform certain tasks
shrinking
the behavior of workers putting in less work than agreed to
residual claimant
persons who share in the profit of a business firm
profit
total revenue - total cost
explicit cost
the cost incurred when actual payment is made
implicit cost
cost that represents the value of resources used in production for which no actual payment is made
accounting profit
total revenue - explicit cost
economic profit
total revenue - total cost (including explicit and implicit costs)
normal profit
zero economic profit, level of profit needed to keep resources employed in a firm
will individuals form teams or firms in all settings?
no, only when the sum of what they can produce is greater than working alone
is accounting profit or economic profit larger?
accounting profit
fixed input
input whose quantity can’t be changed, no matter the output
variable input
input whose quantity can be changed as output changes
short run
the period in which some inputs in production process are fixed
long run
a period in which all inputs in production processes can be varied
marginal physical product
the change in output that results form changing the variable input by one unit, with all other inputs held fixed (MPP= change in Q/change in L)
law of diminishing marginal return
as larger amounts of variable inputs are combined with fixed inputs, the marginal physical product of variable input eventually declines
total cost
fixed costs + variable costs
marginal cost
change in total cost that results from change in quantity of output (MC= change in total cost/change in quantity)
MC curve falls when output is between 1-10, stays the same between 10-20, and rises between 20-30. What does the behavior of the curve say about the MPP of the variable input?
when MC is declining MPP is rising, when MC is constant MPP is constant, when MC is rising MPP is declining
The vertical distance between the AVC and ATC curves is equal to
average fixed cost
The reason the change in total cost divided by the change in output is equal to the change in total variable cost divided by the change in output is because
total fixed cost does not change as output changes
average total cost
TC/Q
