Economic Decision Making by Firms and Consumers Flashcards
When marginal revenue equals marginal cost what happens?
The firm is maximizing the profit.
What is profit?
Revenue - cost tp produce
When to leave the market?
When the price is less than the average total cost at the maximum product output.
Short run
TC = FC+VC
Period of time where there is atleast 1 fixed cost.
Long run
No fixed costs
TC = VC
Marginal Product of Labor
Increase in output that results from employing one additional unit of labor.
Diminishing Marginal Product
The decrease in products produced as you increase workers.
Marginal Cost
Change in Total cost / Change in quantity
What are explicit vs implicit costs?
Explicit Costs - tangible expenses that appear in a company’s general ledger and are used to determine profitability
Implicit Costs - any cost that has already occurred but not necessarily shown or reported as a separate expense
Marginal product vs marginal cost
Marginal product at first increases while the marginal cost decreases
Marginal cost vs average total cost
- Marginal cost = average cost when marginal cost is at its minimum
- Marginal cost < average cost when average variable cost must be falling
Firms short run condition for shutting down?
Total revenue is < Variable Cost
Firms long run condition for shutting down?
If revenues are unable to cover total cost
