Chapter 11 Flashcards
(39 cards)
Explicit costs are what?
opportunity costs of production that require a monetary payment (out of pocket expenses that pay for services, materials, transportation, etc)
Implicit costs are what?
opportunity costs of production that do not require a monetary payment (the salary you’d be giving up if you decided to work for yourself instead of for someone else)
Firms try to maximize the difference between ______ and the _______
their total costs (explicit and implicit); their total revenues (the amount they receive for goods)
Profit =
total revenues - total costs
Accounting profit =
total revenues - total explicit costs
Economic profit =
total revenue - total explicit and implicit costs
A zero economic profit is a _____ profit
normal
At zero economic profit, economic profits are ___ but accounting profits are _______
zero; positive
Sunk costs are what?
costs that have already been incurred and cannot be recovered
This cost is an opportunity cost and an out of pocket expense
Explicit cost
T/F: if a firm has any implicit costs, its economic profits exceed its accounting profits
False
______ look at implicit costs
economists
Short run means what?
a period is too brief for some inputs to be varied (ex. you can’t get a bigger factory overnight)
Inputs such as buildings and equipment that do not change with output are called…
fixed inputs
Long run means what?
a period in which a firm can adjust all inputs (all inputs are variable. There are no fixed costs)
The length of the long run can vary from
industry to industry
Production function is what?
the relationship between quantity of inputs (workers) and the quantity of outputs (bagels)
Total product is what?
the total amount of output
The change in total output of a good that results from a ONE UNIT change in input
Marginal product
As a variable input increases, with other inputs fixed, a point will be reached where the additions to output will eventually decline (paper folding example from macro)
Diminishing marginal product
Fixed costs are what?
Costs that do not vary with the level of output
Total fixed costs are what?
the sum of the firm’s fixed costs
Variable costs are what?
costs that vary with the level of output
Total variable costs are what?
the sum of the firm’s variable costs
