Flashcards in Demand and Supply Analysis: the Firm Deck (28):

1

## Calculate and interpret accounting profit

### Net income on income statement (total revenue minus accounting costs)

2

## Calculate and interpret economic profit

### Accounting profit minus total implicit opportunity costs

3

## Calculate and interpret normal profit

### Normal profit is level of accounting profit that just covers implicit opportunity costs

4

## Calculate and interpret economic rent

### Surplus value resulting from fixed supply of particular good causing market price to be higher than cost to bring resource to market

5

## Calculate and interpret total revenue

### Price times quantity sold

6

## Calculate and interpret average revenue

### Total revenue divided by quantity sold

7

## Calculate and interpret marginal revenue

### Change in total revenue divided by change in quantity

8

## Compare accounting, economic, normal profit, and economic rent

### If accounting profit exceeds normal profit, market rewards firm. If just equals, no effect. If accounting profit less than normal profit, market punishes firm.

9

## Compare total, average, and marginal revenue

### Marginal revenue equals average revenue in competitive market

10

## Describe a firm's factors of production

### land, labor, capital, and materials

11

## Calculate and interpret total costs

### Total fixed costs plus total variable costs

12

## Calculate and interpret average costs

### Total cost divided by quantity - maximize profit at lowest point on average cost curve

13

## Calculate and interpret marginal costs

### Change in total cost divided by change in quantity sold - usually decline initially and increase at higher quantities

14

## Calculate and interpret fixed costs

### Sum of all fixed expenses (incl. opportunity costs), which do not change based on quantity

15

## Calculate and interpret variable costs

### Sum of all variable expenses (per unit variable cost times quantity) - increases when quantity increases

16

## Calculate and interpret breakeven points of production

### Quantity where price, average revenue, and marginal revenue equal average total cost - want lower b/c easier to achieve, but higher should result in greater profits

17

## Calculate and interpret shutdown points of production

### Quantity where average revenue less than average variable cost - requires shutting down and just paying fixed costs

18

## Describe approaches to determining profit maximizing level of output

###
Maximize spread on TR and TC;

MR equals MC; or

Revenue value of output from last unit of input employed equals cost of employing that input unit

19

## Describe how economies of scale and diseconomies of scale affect costs

### As firm grows it can move to lower cost structure (economy of scale) or higher cost structure (diseconomy of scale)

20

## Distinguish between short-run and long-run profit maximization

###
TR>TC - stay in market

MR=MC - maximum profit in short run

TR>TVC; TR

21

## Distinguish among decreasing cost, constant cost, and increasing cost industries - describe long run supply of each

### Constant is where output increases by same proportion as increase in inputs. Decreasing/increasing self descriptive.

22

## Calculate and interpret total product of labor

### Sum of all inputs during time period

23

## Calculate and interpret marginal produt of labor

###
Amount of additional output resulting from one more unit of input (assuming other inputs fixed)

Change in total product/Change in Labor

24

## Calculate and interpret average product of labor

### Total product divided by quantity of given input

25

## Describe diminishing marginal returns

### Adding additional inputs leads to lower marginal products, eventually becoming negative (fixed resources like plant size or quality of labor affect this)

26

## Calculate and interpret profit-maximizing utilization level of an input

### Marginal Product times Price of Input

27

## Determine optimal combination of resources that minimizes cost

###
Marginal Revenue Product = MP times Product Price

Add as much of the highest MRP input and maximize profit when price of input equals MRP

28