econ fonal elzenga section 13 Flashcards
Conspicuous consumption:
the consumption of goods not for one’s direct pleasure, but simply to show off to others
Thorstein Veblen:
argued that male industrialists don’t have enough time to show off with their money, so they marry a trophy wife to do it for them
Assumptions of the theory of rational choice:
o Decisions are costless
o Preferences are given
o Individuals maximize utility
Profit
total revenue - total cost
* Accountants only include explicit costs
* Economists include explicit and implicit costs; include opportunity costs of the factors of production
Total Economic Cost:
explicit payments to the factors of production plus the opportunity cost of the factors of production provided by the owners of the firm
Total Economic Revenue:
the amount a firm receives for selling its product or service plus any increase in the value of the assets owned by the firm
Long-run Decision:
a decision in which the firm can choose among all possible production techniques
Short-run Decision:
a decision in which the firm is constrained in regard to what production decisions it can make
Marginal product (MP):
the additional output forthcoming from an additional input, other inputs constant
Average product:
the total output divided by the quantity of the input
Law of diminishing marginal productivity:
as more and more of a variable input is added to an existing fixed input, after some point the additional output one gets from the additional input will fall; called flowerpot law
Marginal cost rises
When marginal productivity falls
Minimum Efficient Level of Production:
the amount of production that spreads setup costs out sufficiently for a firm to undertake production profitably; at this point the market has expanded to a size large enough for firms to take advantage of all economies of scale; where average costs are at a minimum
Increase in firm size
Causes general moral to decrease
Causes monitoring costs to increase
Constant returns to scale:
the long run average total costs do not change with an increase in output; occur when production techniques can be replicated again and again to increase output
