Economics 101: Test 3

Flash Card Set For A College Course In Economics.
Created Apr 10, 2012
by gabbyfreeman
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Side ASide B
economic profit
total revenue - economic cost
economic cost
The opportunity cost of the inputs used in the production process; equal to explicit cost plus...
explicit cost
A monetary payment out of pocket to use resources owned by others.
implicit cost
An opportunity cost that does not involve a monetary payment
accounting cost
The explicit costs of production
accounting profit
total revenue - accounting cost
marginal product of labor (MP)
THe change in output from one additional unit or labor (worker)MP = ∆Q / ∆L
Law of Diminishing Returns
As more variable inputs are added to a fixed input in the short run, beyond some point, marginal...
total-product curve
A curve showing the relationship between the quantity of labor and the quantity of output produced,...
fixed cost (FC)
Cost that does not vary with the quantity produced ex: rental of facilities
variable cost (VC)
Cost that varies with the quantity producedex: labor
short-run total cost (TC)
The total cost of production when at least one input is fixed; equal to FC + VC
average fixed cost (AFC)
The total fixed cost divided by the quantity produced (output)AFC = TFC / Q
average variable cost (AVC)
The total variable cost divided by the quantity produced (output)AVC = TVC / Qwhen labor is...
average total cost (ATC)
Short-run total cost divided by the quantity producedATC = AFC + AVC
the ATC curve is initially negatively sloped because...
- spreading the fixed cost- labor specialization
short-run marginal cost
The change in short-run total cost resulting from a one-unit increase in output (∆TC/ ∆Q)
long-run total cost (LTC)
The total cost of production when a firm is perfectly flexible in choosing its inputs
long-run average cost (LAC)
The long-run cost divided by the quantity produced
short run
Period of time in which the firm has both fixed and variable inputs.  Fixed inputs...
long run
A period of time in which firms can adjust all inputs (so all inputs are variable)....
production technology
The means for combining inputs in a certain way in order to produce output.  Production...
average product (AP)
Average product shoes labor (input) productivity; it is equal to total output (Q) divided by...
3 stages of production
stage 1) MPL increases- workers become more productive by specializingstage 2) MPL...
total fixed costs (TFC)
Costs associated with short run fixed inputs that must be paid even if the amount...
total variable costs (TVC)
Costs that change with different levels of output, as more variable inputs must be used to...
total costs (TC)
Total production costsTC = TFC + TVC
marginal cost (MC)
Change in cost (increase or decrease) associated with producing one more or less unit of outputMC...
changes in variable costs
1) changes in input prices2) changes in productivity
changes in productivity
An increase in productivity means that more output can be produced with the same amount of...
perfectly competitive market characteristics
1) Many producers and consumers2) Homogeneous products3) Producers and consumers...
perfect competition
In the long run, the competitive market equilibrium will result in economic efficiency,...
short run profit-maximizing decision model
To determine how much a producer will produce and sell, ask:1) Will a firm produce?2) How much...
In a perfectly competitive market, why does marginal benefit equal price?
MB (or MR) = ∆TR / ∆Q = ∆(PQ) / ∆Q = P(∆Q) / ∆Q = P; MB = P
MB vs. MC
Production will continue as long as MB > MCThe profit maximizing quantity is where MB =...
calculating profit
πE = TR - TCorπE = (P - ATC)Q
short run profit-maximizing decision modelproduce?
If P > min AVC - YESIf P < min AVC - NO
short run profit-maximizing decision modelhow much?
Choose Q where P = MC
short run profit-maximizing decision modelprofit, loss, or break-even?
πE = (P - ATC) Q
perfectly competitive firm's supply curve
The supply curve for a perfectly competitive firm is the portion of the marginal cost curve...
long run analysis assumptions
1) Firm exit and entry are the only adjustments firms can make in response to market...
transition from short run to long run
a) Start at breakeven where the market price equals minimum ATCb) Analyze a short run shock...
long run market equilibrium/ efficiency condition
P = MC = min ATC
opportunity cost
Opportunity costs are incurred when self-owned, self-employed resources are used in production
economic profit (πE)
πE = total revenue (TR) - explicit costs - opportunity costs
accounting profit (πA)
πA = total revenue (TR) - explicit costs
monopolies exist because of barriers to entry arising from:
1) Government action - patents and copyrights, public franchises2) Control of a key natural...

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