7:4-1, 8:1-1, 8: 2-1, 8: 3-2, 8: 3-3 Flashcards
(26 cards)
Long Run
time period in which there are no fixed inputs and therefore no fixed costs.
****All inputs can be varied****
Two Decisions a Firm Faces in the long run:
- the cost minimizing technique that it wants to use.
- The scale or size of operation that it will use.
Capital-intensive technology
one that uses more capital relative to labor.
Labor-intensive Technology
one that uses more labor relative to capital.
Short Run versus Long Run
- Almost all the manufacturing inputs are fixed in the short run. The only variable is labor.
- There are no fixed inputs in the long run, the firm has enough time to vary all inputs including, factory, equipment, machinery, tools, etc.
- The Firm can also choose the size of its operartion in the long run, which is called the scale.
- In the short run, scale is fixed.
The long run is a period of time during which:
- all inputs are variables
- there are no fixed costs
- the firm can change the scale of its operaions
Short Run Versus Long Run (2)
- Labor is the most easily adjusted variable in the short run
- There are no fixed costs in the long run.
After choosing the combination of labor and capital, a firm must decide all of the following:
- their scale of operation
- this size of its factories
- the firm size
Total Revenue
is equal to the price of the product you’re selling times the quantity of the product that you’re able to sell
(TR = P * y)
Price
total revenue for firm is dependent upon the product’s price.
A firm with market power is called a
price setter. ( It can raise the price without losing all customers and lower price without attracting the entire market.)
Competitive Firms
have no market power and are called price takers.
A competitive firm’s demand curve
is a horizontal line at the equilibrium price determined by market supply and demand. If the firm tries to raise the price, it sells nothing. It can sell all it produces at the market price.
Any firm’s profit is
the difference between total revenue and total cost.
A competitive firm cannot sell at a price
above the market price because competition will sell at the market price and the original firm will not sell any of its product.
Profit is
TR - TC and (PRICE x Q) - TC
A firm is in a competitive market when
it is both unable to influence the price of its product and the firm takes as given the price of its product set by supply and demand in the market.
To determine its profitability
a competitive firm must compare its average cost to the product price.
Total profit for a firm is
both total revenue minus total cost and pxq - TC
A firm in a competitive industry will try to produce the output level for which
marginal cost equals marginal revenue.
What is profit?
Profit is the difference between total cost (TC) and total revenue (TR).
In determining the level of output a firm should target to maximize profit
Profit is maximum when marginal cost (MC) equals price and MC is increasing.
A profitable, competitive firm divides
total revenue (TR) between its variable cost (VC), its fixed costs (FC), and its profit.
In order to maximize profit
a firm in a perfectly competitive market should operate at that level of output where the difference between average total costs and price is maximum.
