profit =
total revenue minus total cost
total cost
fixed costs plus variable costs
total revenue
Price x Quantity
the amount a firm receives for the sale of its output
account's profit measure =
tr=total sales x price
profit is explicit revenue minus explicit cost
economist's profit measure =
revenue includes any increase or decrease in the value of any assets the firm owns.
they would take into account the implicit cost or oppertunity cost of the owner.
economic profit = explicit and implicit revenue - explicit and implicit cost
=(total reven
long run decision (production)
decision in which the firm can choose among all possible production techniques.
all variables and bussines can change anything
short run decision (production)
the firm is constrained in regard to what production decisions it can make.
have at least one thing that is fixed
the terms long and short run refer to the degree of flexibility the firm has in changing production decisions.
the terms long and short run refer to the degree of flexibility the firm has in changing production decisions.
marginal product =
change in total output
extra production due to the addition of one more unit of worker
average product =
(total production)/(quantity of production)
law of diminishing marginal productivity
units of a variable input are added to a fixed input, beyond some point the production declines.
fixed costs
cannot be changed in the period of time under consideration
in the long run there are no fixed costs since all costs are variables
in the long run there are no fixed costs since all costs are variables
in the short run, the number of costs will be fixed
in the short run, the number of costs will be fixed
variable cost
costs that change as output changes
total cost =
fixed cost + variable cost
average total cost =
total cost/quantity
average fixed cost =
fixed cost/quantity
average variable cost =
variable cost/quantity
average total cost (another way of solving it) =
average fixed cost + average variable cost
in deciding how many units to produce, the most important variable is ..........
marginal cost
marginal cost (change in total cost/change in quantity)
the cost of producing one more unit of a good
(the increased total cost of increasing the level of output by one unit)
the total variable cost curve has the same shape as total cost curve-----they differ in fixed costs
the total variable cost curve has the same shape as total cost curve-----they differ in fixed cost
the marginal cost curve goes through the minimum point of the average total cost curve and average variable cost curve.
the marginal cost curve goes through the minimum point of average total cost curve and average variable cost curve.
the average fixed cost curve looks like a child's slide, it starts out as a steep decline then becomes flatter and flatter
the average fixed cost curve looks like a child's slide, it starts out as a steep decline then becomes flatter and flatter
what does the shape of the average fixed cost curve tell you?
as output increases, the same fixed cost can be ranged out over a wider range of output
the average and marginal cost curves are U-shaped
the average and marginal cost curves are U-shaped
the average and marginal cost curves are U-shaped because
when output is increased in the short-run, it can only be done by increasing the variable output.
as more and more of a variable input is added to a fixed input, the law of diminishing productivity sets in, what happens?
the marginal and average productivities fall
as marginal productivity falls, the marginal cost must rise
as marginal productivity falls, the marginal cost must rise
when the average productivity of input falls, the average variable cost must rise
when the average productivity falls, the average variable cost must rise
the shapes of marginal cost and marginal productivity are mirror images of eachother
the shapes of marginal cost and marginal productivity are mirror images of eachother
when marginal cost exceeds average cost, then average cost must be increasing
when marginal cost exceeds average cost, then average cost must be increasing
when the marginal cost if less than the average cost, then the average cost is decreasing
when the marginal cost is less than the average cost, then the average cost is decreasing
the unique relationship between mc and ac curves explain what?
why marginal cost curves always intersect average cost curves at the minimum of the average cost curve
if mc is greater than avc, then avc is rising
if mc is greater than avc, then avc is rising
if mc is greater than atc, then atc is rising
if mc is greater than atc, then atc is rising
if mc is equal to atc or avc, then atc and avc are at their lowest point
if mc is equal to atc or avc, then atc and avc are at their lowest point
if mc is greater than avc, then avc is rising
if mc is greater than avc, then avc is rising
if mc is less than avc, then avc is falling
if mc is less than avc, then avc is falling
when (marginal cost) is above (average variable cost), as long as (average variable cost) does not rise by more than (average fixed cost falls), (average total cost) will still fall.
when marginal cost is above average variable cost, as long as average variable cost does not rise more than average fixed cost, the average total cost will still fall.