Midterm 2 Flashcards
accounting profit
total revenues minus explicit costs, including depreciation
economic profit
total revenues minus total costs (explicit plus implicit costs)
explicit costs:
out-of-pocket costs for a firm, for example, payments for wages and salaries, rent, or materials
implicit costs:
opportunity cost of resources already owned by the firm and used in business, for example, expanding a factory onto land already owned
budget constraint (or budget line):
shows the possible combinations of two goods that are affordable given a consumer’s limited income
diminishing marginal utility:
the common pattern that each marginal unit of a good consumed provides less of an addition to utility than the previous unit
fixed cost:
cost of the fixed inputs; expenditures that do not change regardless of the level of production (at least in the short term)
marginal cost:
the additional cost of producing one more unit; mathematically,
variable cost:
cost of production that increases with the quantity produced; the cost of the variable inputs
average total cost:
for any quantity of output, total cost divided by the quantity of output
average variable cost:
for any quantity of output, variable cost divided by the quantity of output
monopoly:
a situation in which one firm produces all of the output in a market
1. one seller
2. no close substitutes
3. high barriers to entry
price discrimination:
charging different prices to different customers for the same product.
price taker:
firms in a perfectly competitive market; since no firm has any market power they must take the prevailing market price as given
break-even point:
the level of output where price just equals average total cost, so profit is zero
