Short-Run Profit Maximization 8.3-3 Flashcards
Maximizing Profits:
Just because a firm is maximizing its profits, doesn’t mean it’s actually making a profit. It could be minimizing losses instead.
What is profit?
The difference between Total Revenue & Total Cost. (TR - TC)
What is profit per unit?
Price - ATC
What is Average Variable Cost Curve?
Cost of labor per unit of output produced.
What is Average Total Cost?
Total cost per unit of output (ATC = AVC + AFC)
What is Marginal Cost?
Cost of producing and extra unit of output.
Placement of curves on a graph:
ATC goes above AVC. MC goes through both curves at their lowest point.
What is the difference between the ATC and the AVC?
It equals the Average Fixed cost.
Why does the Average Total Cost Curve and the Average Variable Cost Curve get closer as output increases?
Because AFC is headed towards zero.
When a firm is doing the best it can, how well is it actually doing?
Think about profit. TR - TC. Find TR in the graph. (PxQ=TR)
Who gets the revenue that the firm takes in from its sales?
Its workers gets some of the money (VC). Another amount goes to producing the product. And the last bit of money is the firm’s profit.
In simpler terms:
Total revenue is distributed to profit, variable costs paid to the workers, and there are fixed costs.
