the primary goal of a business firm is to
maximize profit
a firm's fundamental goal is
to maximize profit
accountants calculate
depreciation using IRS rules
opportunity cost is the
cost the firm must pay for the factors of production
the cost that a firm pays in money is
an explicit cost and opportunity cost
a cost of production that does not entail a direct money payment
implicit cost
a "normal profit" is the return to
entrepreneurship
a normal profit is referred to as
the return to entrepreneurship
normal profit is
part of the firm's opportunity costs
a firm's total revenue minus it's opportunity cost is its
economic profit
economic profit equals total revenue minus total
opportunity costs
opportunity cost measures
the cost of all factors of production the firm employs
the opportunity cost of a firm using its own capital is
economic depreciation
the difference between a firm's total revenue and its total cost is
economic profit
the short run is the time frame
during which quantities of all resources are fixed
the short run is a time period that is
too short to change the size of the firm's plant
to produce more output on the short run, a firm must employ more of
its variable resources
which is a list of fixed inputs for a hospital?
the emergency room, intensive care unit, and other facilities
the long run is a time period that is
long enough to change the size of the firm's plant and all other inputs
the long run is defined as
the period of time when all resources are variable
in the long run, the firm can
change the number of workers it employs and the size of its plant
total product curve shows the relationship between total product and
the quantity of labor
moving along the total product curve, what is held constant?
technology
which statement correctly describes a total product curve?
separates attainable outputs from unattainable outputs
the marginal product of labor is
the change in the total product divided by the increase of labor
when the slope of the total product curve is steep, the marginal product is
high
increasing marginal returns always occur when the
marginal product of an additional worker exceeds the marginal product of the previous worker
decreasing marginal returns
affect all firms, but at different production levels
decreasing marginal returns occur in the short run as more labor is hired to work in a fixed sized plant because
adding more workers exhausts the possible gains from specialization
when the average product is at its maximum
it is equal to the marginal product
in the short run, firms increase output
by increasing the amount of labor used
total cost includes
the cost of both variable and fixed resources
if someone owns a company that incurs no fixed costs
their total cost would equal their total variable cost
the cost that does not change as output changes is
total fixed cost
which cost can be positive when the output is zero?
total fixed cost
what is an example of a fixed cost?
annual fire and health insurance premiums
the cost of labor is known as
variable cost
if a firm does not produce any output
its total variable cost must be zero
the change in cost that results from a one-unit increase in output is called the
marginal cost
as a typical firm increases its output, the marginal cost
decreases at first and then increases
average variable cost equals
total variable cost divided by output
average total cost equals
average fixed cost plus average variable cost
what always decreases when output increases?
average fixed cost
the average fixed cost curve is
always negatively sloped
the u shaped average total cost curve is
the result of average fixed cost falling and decreasing marginal returns as output increases
the u shape of the average variable, average total, and marginal cost curves reflects
both increasing and decreasing marginal returns
the short-run average total cost, average variable cost, and marginal cost curves are all u shaped because of
increasing and then decreasing marginal returns as more labor is hired
total cost is equal to the sum of
total variable cost and total fixed cost
total fixed cost is the cost of
a firm's fixed factors of production
when a firm's long-run average total cost falls as its output increases, the firm is experiencing
economies of sale
as output increases, economies of sale occur when the
long run average cost decreases
the main source of economies of scale is
greater specialization in both labor and production
diseconomies of sale is
a long run phenomenon
the long-run average cost curve
shows the lowest average cost facing a firm as it increases output changing both its plant and labor force
the long-run average cost curve is u shaped because of
economies and diseconomies of sale
as output increases, average total cost decreases
initially and then starts to increase
a market with a large number of sellers
might be a monopolistically competitive or a perfectly competitive market
a perfectly competitive firm
sells a product that has perfect substitutes
in which market do firms exist in very large numbers, each firm produces an identical market, and there is freedom of entry and exit?
only perfect competition
the characteristics that describe a perfectly competitive industry include
many firms selling an identical product
what is an example of a perfectly competitive market?
farming
a monopoly occurs when
one firm sells a good that has no close substitutes and a barrier blocks entry from other firms
a market is classified as monopolistically competitive when
many firms produce a slightly differentiated product
a market is classified as an oligopoly when
a few firms compete
the firm's overriding objective is to
maximize economic profit
normal profit is
the return to entrepreneurship
to maximize its profit, in the short run a perfectly competitive firm decides
what quantity of output to produce
a perfectly competitive firm can
sell all of its output at the prevailing market price
a firm that is a price taker faces
a perfectly elastic demand curve
we know that a perfectly competitive firm is a price taker because
the demand curve is horizontal
marginal revenue is
the change in total revenue from a one unit increase in the quantity sold
for a perfectly competitive firm, marginal revenue
is equal to the price
as a perfectly competitive firm produces more and more of a good, its economic profit
first increases then decreases
the market supply in the short run for the perfectly competitive industry is
the sum of the supply schedules of all firms
in the short run, a perfectly competitive firm
can possibly make an economic profit or possibly incur an economic loss
a perfectly competitive firm should shut down in the short run if price falls below the
marginal revenue
when new firms enter a perfectly competitive market, the market
supply curve shifts to the right
when new firms in a perfectly competitive market are earning an economic profit
new firms will enter the industry
in the long run, existing firms exit a perfectly competitive market
only if they incur an economic loss
if perfectly competitive markets are making an economic profit, the economic profit
attracts entry by more firms, which lowers the price