Theory of the firm Flashcards Preview

Economics 1. Microeconomics > Theory of the firm > Flashcards

Flashcards in Theory of the firm Deck (42)
1
Q

factors of production

A

land labor capital enterprise

2
Q

law of deminishing returns

A

refer to a point at which the level of profit or benefits gained is less than the amount of money invested

3
Q

cost of production

A

can be fixed TFC

variable TVC

4
Q

total fixed cost definition

A

cost that does not change with an increase or decrease in the amount of goods or services produced

5
Q

Total variable cost definition

A

coat that vary depending on a company’s production volume

6
Q

average fixed cost def

A

fixed cost of production divided by quantity of output produced

7
Q

average variable cost def

A

AVC=TFC/Q

variable cost of production divided by quantity of output produced

8
Q

marginal cost def

A

MC=change TC/change Q

9
Q

average total cost

A

ATC= AFC+AVC

total cost of production divided by quantity of output produced

10
Q

total cost

A

TC=TFC+TVC

11
Q

why MC cross ATC?

A

MC= one extra
ATC= the average
when we have one more test and get a bad grade, the average go down. As more you take tests, the average will cross the marginal curve. MC cannot go down while ATC can at some example

12
Q

increasing return def

A

operate every additional investment of capital and labour yield less than proportionate returns

13
Q

constant return def

A

ratio between the input and outputs

14
Q

zero return def

A

When there is no profit

15
Q

negative return def

A

each additional unit of output reduces the level of output

16
Q

marginal product def

A

MP=change TP/change#workers

output that results from one additional unit of a factor of production , all other factors remain constant

17
Q

diminishing return def

A

refer to a point at which the level of profit or benefits gained is less than the amount of money invested

18
Q

A

The larger the output the greater the quantity of output over which fixed cost is spread leading to lower average cost

19
Q

the short run

A

taken or considered over a short period of time

20
Q

the long run

A

all costs are variable in the long run

21
Q

Long run average total cost def

A

LRATC
the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output

22
Q

economies of scale def

A

when increasing the scale of production leads to a lower cost per unit of output

23
Q

constant cost def

A

the point between disec and econ of scale

24
Q

diseconomies of scale

A

where the costs per unit of output increase as the scale of production increases.

25
Q

internal economies of scale

A

firm-specific, or caused internally, while external economies of scale occur based on larger changes outside of the firm. Both types result in declining marginal costs of production; yet, the net effect is the same.

26
Q

internal diseconomies of scale

A

economies of scale no longer function for a firm. Rather than experiencing continued decreasing costs per increase in output, firms see an increase in marginal cost when output is increased.

27
Q

external economies of scale

A

increase the productivity of an entire industry, geographical area or economy. The external factors are outside the control of a particular company, and encompass positive externalities that reduce the firm’s costs

28
Q

external diseconomies of scale

A

factors beyond the control of a company increases its total costs, as output in the rest of the industry increases. The increase in costs can be associated with market prices increasing for some or all of the factors of production

29
Q

internal vs external economies of scale effect on the graph

A

internal sources cause a movement along the LRATC curve

external source cause a shift in the LRATC curve

30
Q

sources of internal economies of scale

A
• technical source
• managerial
• marketing
• distribution
31
Q

sources of external economies of scale

A

- strong industry (competitors)

32
Q

minimum efficient scale

A

the level of output where econ of scale and constant cost start

33
Q

optimal output

A

maximum quantity produced before the company starts to experience diseconomies of scale

34
Q

revenue def

A

firms total earnings from a specified level of sales within a specified period

35
Q

total revenue

A

TR=QxP

firms total earnings from a specified level of sales within a specified period

36
Q

average revenue

A

AR=TR/Q

is the amount that the firm earns per unit sold

37
Q

marginal revenue

A

MR=(change TR)/(change in Q)

the total extra revenue by selling one more unit (per period of time)

38
Q

profit maximization rule

A

he short run or long run process by which a firm determines the price and output level that returns the greatest profit.
MC=MR

39
Q

normal profit

A

returns or earnings needed to keep a firm operating

40
Q

economic profit

A

The monetary costs and opportunity costs a firm pays and the revenue a firm receives. calculated by substrating explixit cost and implicit cost

41
Q

explicit cost

A

A direct payment made to others in the course of running a business, such as wage, rent and materials, which are those where no actual payment is made.

42
Q

implicit cost

A

The opportunity cost equal to what a firm must give up in order to use factor of production which it already owns and thus does not pay rent for.