Ch. 6: Sellers and Incentives Flashcards
(34 cards)
Firm
A business entity that produces and sells goods or services
Production
The process by which the transformation of inputs (such as labor and machines) to outputs (such as goods and services) occurs.
Physical Capital
Any good, including machines and buildings, used for production.
Short Run
A period of time when only some of a firm’s inputs can be varied
Fixed costs
Long Run
A period of time wherein a firm can change any input
Variable costs
Fixed Factor of Production
An input that cannot change in the short run
Variable Factor of Production
An input that can change in the short run.
Marginal product
The additional amount of output obtained from adding one more unit of input
Specialization
Workers develop specific skill sets so as to increase total productivity.
Law of Diminishing Returns
At a certain point of successive increases in inputs, marginal product begins to decrease.
Cost of production
What the firm must pay for its inputs,
Total Cost
Total cost = Variable cost + Fixed cost
Variable costs (VCs)
Those costs associated with variable factors of production.
Fixed cost (FC)
A cost associated with a fixed factor of production, such as structures or equipment, and therefore does not change with production in the short run
Average total cost (ATC)
Total cost/Total output
Average variable cost
Total variable cost/Total output
Average fixed cost (AFC)
Total fixed cost/total output
Marginal cost (MC)
Marginal cost=Change in total cost/Change in output.
Revenue
The amount of money it brings in from the sale of its outputs.
Total revenue=Price×Quantity sold.
Marginal revenue (MR)
The change in total revenue associated with producing one more unit of output.
Profits
Profits= Total revenues − Total costs
Total Profit = (Price - ATC) x total output quantity
Accounting profits
Revenues - explicit costs
Economic profits
Total revenue - both explicit and implicit costs.
Price elasticity of supply
The measure of how responsive quantity supplied is to price changes
Price elasticity of supply(εs)=Percentage change in quantity supplied/Percentage change in price.
