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1

LRATC

long run average total cost

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2

The LRATC curve is

U shaped and made up of various potential SRATC curves

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3

LRATC def

lowest cost per unit at each level of output, assuming all factors are variable.

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4

economies of scale

LRATC decreases as output increases.

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5

economies of scale slope is

downward

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6

increasing returns to scale (economies of scale)

increase in inputs causes larger increase in output.

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7

constant returns to scale

LRATC is constant as output increases

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8

constant returns to scale slope

0

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9

dis-economies to scale

LRATC increases as output increases

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10

dis-economies to scale slope

upward

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11

decreasing returns to scale (dis-economies to scale)

increasing input causes lesser increase in outputs.

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12

profit formula

revenue - cost

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13

revenue formula

price x quantity

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14

explicit cost

out of pocket payments that are actually made. (money physically spent)

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15

implicit cost

value of the benefits that are foregone. (the opportunity cost)

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16

accounting profit

revenue - explicit cost

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17

economic profit

revenue - (explicit and implicit cost)

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18

normal profit

0; revenues - explicit cost- implicit cost

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19

with normal profit resources

cannot be made better off in any other way; normal profit is a good thing.

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