Economics 102 Introduction to Economics Chapter 6 Study Guide

A set of flashcards covering key concepts and terms from Chapter 6 of Economics 102, focusing on the producer's problem and related economic principles.

Producer's problem

The model showing where supply comes from, focusing on a firm trying to maximize profits.

Perfectly competitive market

A market condition where no buyer or seller can influence market price, sellers produce identical goods, and there is free entry and exit.

Implicit cost

The potential gains from investing in something else; contrasted with explicit costs.

Short Run

A period of time when some inputs cannot be changed.

Long Run

A period of time when all inputs can be changed.

Variable factor of production

An input that can change in a certain period of time and changes with the level of output.

Fixed factor of production

An input that cannot be changed in the short run and remains constant regardless of output.

Marginal cost (MC)

The additional total cost resulting from one additional unit of input.

Average variable cost (AVC)

Total variable cost divided by output.

Average total cost (ATC)

Total cost divided by total output.

Revenue

The amount of money the firm brings in from the sale of its outputs.

Profit (π)

The amount remaining after total costs are subtracted from total revenue; π = TR - TC.

Economic Profit

Profit that accounts for opportunity cost, equal to zero in competitive equilibrium.

Marginal revenue (MR)

The change in total revenue associated with producing one more unit.

Profit maximizing rule

The principle that states to set marginal revenue equal to marginal cost (MR = MC) to find optimal output.

Price Elasticity of supply (εs)

The measure of how responsive quantity supplied is to price changes.

Shutdown

The short-run decision to not produce during a specific period when price is less than average variable costs (AVC).

Economies of Scale

When average total cost (ATC) decreases as the quantity produced increases.

Constant returns to scale

When average total cost (ATC) remains the same as quantity produced increases.

Diseconomies of scale

When average total cost (ATC) increases as quantity produced increases.

Exit

The long-run decision to leave the market when price is less than ATC or total revenue is less than total cost.

Producer Surplus

The difference between the price a firm is willing to accept and the market price.