Microeconomics Production Costs and Seller's Problem

Vocabulary flashcards covering key concepts from lecture chapters on production costs, short-run shutdown rules, firm demand, and producer surplus.

Marginal Revenue

The change in a firm's revenue as it increases the amount that it sells, which under perfect competition is constant and equals price.

Demand Faced by a Firm

The market price condition where firms can sell as much of their product as they want.

Accounting Costs

Costs that can be recorded directly on financial books.

Opportunity Costs

Costs that cannot go on the books, representing the value of the next best alternative such as growing soy rather than corn.

Economic Profit

Profit calculated by accounting for both explicit costs and opportunity costs.

Revenue

The monetary benefit of producing and selling output, calculated as price times quantity ($P \times Q$).

Short-Run Shutdown Decision

A decision to temporarily cease production if market price is less than average variable cost ($P < AVC$), under which economic profit equals negative fixed cost ($-\text{Fixed Cost}$).

Shutdown Point

The price level where a firm is indifferent between producing and shutting down, which lies at the minimum point of average variable cost ($AVC$).

Fixed Cost

The cost represented graphically by the area of the rectangle between average total cost ($ATC$) and average variable cost ($AVC$).

Variable Cost

The cost calculated graphically by multiplying average variable cost ($AVC$) by the output quantity ($Q$).

Long-Run Market Exit

The long-run decision where a firm permanently leaves the market, as opposed to a temporary short-run shutdown.

Sunk Costs

Costs already incurred, such as research and development expenses for pharmaceutical drugs, that do not factor into production decisions.

Producer Surplus

A measure calculated graphically using the area of a triangle bounded by market price and the individual firm or market supply curve.