08_Economic and Accounting Profits Explained (micro)

Economic Profit

The difference between total revenue and total cost

Accounting Profit

The difference between total revenue and explicit costs

Long Run Equilibrium

Occurs when firms make zero economic profits

Short Run Equilibrium

Occurs when firms can earn extraordinary profits due to market changes

Long Run Supply Curve

The relationship between price and quantity supplied in the long run

Monopoly

A market structure where a single firm supplies the entire market with no close substitutes

Barriers to Entry

Factors that prevent new firms from entering a market

Economies of Scale

Reduced average costs as production increases

Marginal Revenue

The change in total revenue from selling one additional unit of a product

Profit Maximization

A firm's goal to produce the quantity of goods where marginal revenue equals marginal cost

Price Effect

The decrease in revenue from lowering the price to sell more units

Output Effect

The increase in revenue from selling an additional unit of a good

Patent Expiration

When a patent ends