Studied by 2 people
Total Revenue (TR)
price of each unit x quantity sold
Total Cost (TC)
FC + VC
Fixed Costs (FC)
do not change with quantity (typically one-time costs)
Variable Costs (VC)
strictly based on quantity
Total profit
TR-TC
Marginal Cost (MC)
the cost of each additional unit
Efficient scale
ATC is at its lowest
Economy of scale
ATC is falling
Diseconomy of scale
ATC is rising
Marginal Cost (MC) intersects ATC at
Efficient scale
Perfect competition
all firms sell an identical product and are forced to charge the market price
MR PARD
Marginal Revenue (MR) = Price (P) = Average Revenue (AR) = Demand (D)
max profit quantity
Marginal Revenue (MR) = Marginal Cost (MC)
accounting profit
calculating earnings/profit without considering opportunity cost
economic profit
calculating earnings/profit with respect to better options and opportunity cost
Price > ATC
firm is earning profit
Sunk cost
not an ongoing cost
essentially “lost money” that you have to move on from
