Econ Chapters 5-8

Economic Profit

Total revenue-economic cost

Economic cost (opportunity cost of all inputs)

implicit cost-explicit cost

explicit cost

money

implicit cost

opportunity cost other than money

Accounting costs

explicit costs only

Accounting profits

total revenue - explicit costs only

total-product curve

A curve showing the relationship between amount of laborers and the quantity of output

diminishing returns

output increases at a decreasing rate when one input increases and other inputs are held fixed. happens after 3 or more workers

fixed cost

costs that dont vary with quantity produced

variable costs

costs that vary with quanitity produced

short run total costs

total costs when at least one input is fixed (fixed cost + variable cost)

avg fixed cost (short term)

fixed costs/outputs

avg variable cost (short term)

variable costs/outputs

marginal cost

change in total cost/change in outputs

short run avg total cost

avg fixed cost + avg variable cost

short run marginal cost

change in total cost/change in output

difference between long run and short run

there are no diminishing returns in the long run

Long run total cost

cost of production when a firm is flexible in choosing its inputs

Long run average cost

LTC/quantity

Constant returns to scale

making LAC increase with output so average cost is constant

Indivisible input

input that cannot be scaled down to produce a smaller quantity of output

Economies of scale

a situation in which the LAC decreases as output increases (leads to exhaustion of all possible economies of scale)

Minimum efficient scale

output at which scale economies are exhausted

perfectly compettitve market

a market with a lot of sellers and buyers of a homogenous product with no barriers to entry. buyers and sellers are price takers

price taker

a buyer or seller that takes the market price as given

break-even price

price = avg total cost

shut down decisions deal with…

variable costs

Sherman Act 1890

Made it illegal to monopolize a market or to engage in practices that result in a restraint of trade.

Clayton Act 1914

Outlawed tie-in sales contracts, price discrimination for the purpose of reducing competition, and stock-purchase mergers.

Federal Trade Commission Act 1914

Created a mechanism to enforce antitrust laws.

Robinson–Patman Act 1936

Prohibited selling products at “unreasonably low prices” with the intent of reducing competition.

Celler–Kefauver 1950

Outlawed asset-purchase mergers

Hart–Scott–Rodino Act 1980

Extended antitrust legislation to proprietorships and partnerships