Chapter 10: Cost and Industry Structure Flashcards
Firm/Business
Combines inputs of labor, capital, land, and component materials to produce outputs
Production
Any process or service that creates value, including manufacturing, transportation, distribution, wholesale, and retail
Perfect Competition
Many firms, identical product
Monopolistic Competition
Many firms, similar but not identical products
Oligopoly
Few firms, identical or similar products
Monopoly
One firm, no competition
Private Enterprise
Ownership of businesses by private individuals
Total Revenue (equation)
Price x Quantity of Output = Total Revenue
Explicit Costs
Payments actually made, out-of-pocket costs
Implicit Costs
Opportunity cost of using resources already owned by the firm (owner working for no salary, home used as a workplace, depreciation, etc)
Accounting Profit
Total Revenue - Explicit Costs
Economic Profit
Total Revenue - Explicit Costs - Implicit Costs
Fixed Costs
Expenditures that do not change regardless of the level of production (rent)
Variable Costs
Incurred in the act of producing (labor, raw materials, etc)
Diminishing Marginal Returns
Total costs of production begin to rise more rapidly as output increases
Average Total Cost
Total cost divided by the quantity of output
Marginal Cost
Additional cost of producing one more unit of output. Calculated by change in total cost divided by change in quantity
Average Variable Cost
Variable cost divided by quantity of output
Sunk Costs
Fixed costs that cannot be recouped
Average Profit
Profit divided by quantity of output produced
Approximate number of workers at a “large” firm
500
Approximate percentage of the American workforce that works at “large” sized firms
50% / Half
Approximate percentage of the American workforce that works at firms with 100 workers or less
35% / One Third
What is the economic concept behind big box warehouse stores, like Costco and Walmart?
Economies of Scale:
as quantity of output goes up, cost per unit goes down
