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What is a companies revenue?
revenue is the total amount a company makes
Price x Quantity= revenue
What is a companies profit?
the amount of money a company makes after they paid their expenses
Revenue-costs=
What is the difference between accountants and economists?
accountant look at only Explicit costs, where as economists look at both explicit and implicit costs
describe explicit costs
explicit costs (aka out of pocket costs) are payments that are made for using the resources of others. For example an explicit cost for a company may be their rent or how much it costs them to buy their materials.
describe implicit costs
implicit costs are the opportunity costs firms "pay" for using their own resources. For example time, forgone rent, and forgone wages.
total revenue (TR)-economic costs (explicit and implicit)= ______________________
economic profit
total revenue (TR)-accounting costs (explicit only)= ______________________
accounting profit
if a company is making no economic profit then....
the company is making a normal profit
What is normal profit?
normal profit is what a firm makes when they sell the exact same product as another firm. The firm will break even (hit equilibrium) and make no economic profit. (This is in a efficient competitive market )
What is the main goal of every business?
to maximize profit!!!
MR=MC
To earn profit, firms must make _____________
outputs
___________ are the resources needed to make outputs. They are also called factors
inputs
______ ______ is the total output or quantity produced.
This total number that a product is produced. (set number)
For example the ____ ____ of varsity lancer dancer jackets is 20.
TP (total product)
_____ ____ the additional number of outputs (products) generated by additional works (inputs)
MP (marginal product)
Marginal Product (MP)= change in _____ _____ /change in ________ (workers)
change in TP/ change in inputs
What does a MP curve look like?
What is Average Product? (AP)
the number of products (outputs) per unit of inputs (workers)
AP= ______ ______/units of labor (# if inputs or workers)
TP/ units of labor
What are fixed resources? provide an example
fixed resources are resources that do not change with the number of products produced.
For example: in a pizza restaurant, a fixed resource would be the pizza oven
What are variable resources? provide an example
variable resources are resources that change with the number of products produced.
For example: in a pizza restaurant, a variable resource would be the cheese. The more pizzas you make, you more cheese you will need.
What happens to MP (amount producing) as you add more workers?
once you hit a certain number of workers, you can only make so many output. This explains the law of diminishing marginal returns.
explain the law of diminishing marginal (additional) returns
as variable resources (workers) are added to fixed resources (machines) the additional output (# made) produced from each additional worker will eventually fall.
Example: on thanksgiving, there are eventually people in the kitchen so you cannot get anything accomplished
a company is in the ___________ run if they have at least 1 fixed resource.
short
a company is in the _________ run if all of their resources are variable (changing). This describes what can happen in the future
long
the M&M factory only as so many machines (fixed resources) so they can only make so many M&Ms. This puts them in the _____________.
short run
Once the M&M factory opens a new factory, they can make more M&Ms with more machines (fixed resources). This puts them in the _____________.
long run
What are fixed costs?
the cost of a fixed resources that doesn't change with the amount produced
Average fixed costs= ______ ______/ quantity
FC (fixed costs)
what are variable costs?
costs for variable resources (changing) that do change as the amount produced changes
Average variable costs= _____ ____/ quantity
VC (variable costs)
what is the total cost?
the sum of fixed and variable costs
Average total costs= _____ ____/ quantity
TC (total costs)
what are marginal costs?
the additional costs of 1 additional output (the production of 2 more workers equals more output)
marginal costs= change in ____ ____/ quantiy
TC
Average Total Costs (ATC)- Average Variable Costs= _________________
AFC
T or F
MC and MP curves are mirror images of eachother
T
where does MC intersect ATC?
at ATC's lowest point
if a FIXED cost changes, only ___________ and __________ shifts
ATC and AVC (MC and AVC do not change)
if a VARIABLE cost changes, only __________, ___________, and ___________ change.
TC, MC and ATC
What is the long run used for?
the long run is used for planning. Firms use the long run to identify the results of something in the future.
what occurs when the long run average cost falls?
a mass production technique is used to change what is happening in the long run
on a cost curves graph... diseconomies is
a) increasing
b)decreasing
c)constant
A
increasing-as the firm gets too big and difficult to manage
on a cost curves graph... constant returns to scale is
a)increasing
b)decreasing
c)constant
C
constant- the long run ATC is as low as it can get
on a cost curves graph... economies to scale is
a) increasing
b) decreasing
c)constant
B
decreasing
Name the four market structures
perfect competition, monopolistic competition, oligopoly, and monopoly
What type of market structure?
-many small firms
-identical products
-low barriers-easy to enter
-no advertisment
perfect competition
provide an example of perfect competition
a farmers market
what type of market structure?
-one large firm (firm is THE market)
-unique product (no close substitutes)
-high barriers
-price makers
monopoly
provide an example of monopoly
KC P&L
what type of market structure?
-few large producers (less than 10)
-identical or very similar products
-high barriers
-price makers
oligopoly
provide an example of oligopoly
cell phone service (At&T and Verizon)
what type of market structure?
-relatively large number of firms
-different products, but similar
-some control over price
-low barriers
a lot of advertising
monopolistic competition
provide an example of monopolistic competition
fast food restaurants
List three types of barriers...
geography or ownership of raw materials
the government creates patents
superior technology
the idea that firms must worry about the decisions of their competitors and use that strategy is known as...
mutual independence
why are perfectly competitive firms price takers?
because if a firm charges more than the market price (equilibrium), no one will buy.
T or F
Quantity should be produced where MRDARP crosses MC
T
to find your total revenue, multiply the quantity that should be produced times ____________
MR. DARP
A firm should continue to produce as long as MR.DARP is above ___________
AVC
Note 
Flashcard (41)