Chapter 13/14 Quiz

competitive market

buyers and sellers of identical products are free to enter and exit the market

price takers

agents whose actions have no influence on the market price

equilibrium

no one has incentive to change behavior; all firms produce where ATC is minimized and make exactly 0 economic profit

firm shutdown

temporarily suspend activity/operations in a market

firm exit

permanently exit activity/operations in a market

sunk costs

costs that have already been committed and cannot be recovered

the goal of a firm

maximize profits

what is the profit equation?

profit = total revenue - total cost

total revenue

amount of money a firm receives from its’ output

price

amount of money that a unit sells for

average

divide by a total number

average revenue

number of units of output = total revenue/quantity

marginal

extra or less

marginal revenue

the extra revenue brought in by the last unit sold

total cost

the market value of inputs a firm uses in production

explicit costs

input costs that can be measured in dollars

implicit costs

opportunity costs measured in terms of OC (not dollars)

economic profit

total revenue - total cost

excess profits

earning more than $0 economic profits

long-run

all inputs of production can vary

short-run

a timeframe where the quantity of at least one input is fixed

very short run

only one input can vary

production function

relationship between the quantity of inputs used to make a good and the quantity of output of that good

marginal product

increase in output that arises from an additional unit of input (6 workers contribute, anything further is useless)

marginal product of labor

increase in output from an extra unit of labor

marginal product of capital

increase in output from an extra unit of capital

fixed costs

costs that do not vary with the quantity of output

variable costs

costs that vary with the quantity of output

marginal cost

increase in total cost due to an extra unit of production

efficiency point

the point where ATC is minimized

economies of scale (or, increasing returns to scale)

long-run average total cost falls as quantity of input rises

constant returns to scale

long-run average stays constant as quantity of input rises

diseconomies of scale (or, decreasing returns to scale)

long-run average total cost rises as quantity of output rises