Topic 2 Flashcards
___costs that change as output levels change.
Variable cost
____costs that do not vary with output.
Fixed costs
____costs that appear on the financial statements of a company.
Accounting Cost
____additional costs that do not appear on the financial statements of a company. These costs include items such as the opportunity cost of capital.
Implicit costs
____the cost that creditors charge for use of their capital.
Interest
True regarding accounting profit and econmoic profit?
A firm may have a negative economic profit and a positive accounting profit simultaneously.
____occurs when you ignore relevant costs, those costs that do vary with the consequences of your decision.
Hidden-cost fallacy
Hidden-cost fallacy occurs when you ignore_______, those costs that do vary with the consequences of your decision.
Relevant cost
f you take account of irrelevant costs or benefits, that is the_____.
sunk- or fixed-cost fallacy
f a firm is earning negative economic profits, it implies?
that more information is needed to determine accounting profits.
Opportunity costs arise due to?
resource scarcity
The fixed-cost fallacy occurs when?
Firm consider irrelevant cost and overhead/depreciation
When a firm ignores the opportunity cost of capital when making investment or shutdown decisions, this is a case of?
Hiddencost fallacy
When economists speak of “marginal,” they mean
Incremental
If a firm’s average cost is rising, then?
marginal cost is greater than average cost.
____if the present value of the net cash flows is larger than zero, the project is profitable (i.e., earns more than the opportunity cost of capital).
NPV Rule
____a measure of profit that includes recognition of implicit costs (like the cost of equity capital). Economic profit measures the true profitability of decisions.
Econmic profit
Which of the following will increase the break-even Which of the following will increase the break-even quantity?
A decrease in the price level
In the short-run, a firm’s decision to shut-down should not take into consideration?
Fixed costs
Marginal cost (MC) is the additional cost incurred by ____ and____.
Producing
Selling one more unit
Marginal revenue (MR) is the additional revenue____ from_____.
Gained
Selling one more unit.
If the benefit of selling another unit (M_) is___than the M_, then sell another unit.
Marginal Revenue
Bigger
Marginal Cost
