production, costs and market structure
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| What is the main goal of a firm? | maximize profit
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| profit= | TR-TC
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| the amount that a firm receives from the sale of goods and services | Total revenue
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| Total revenue= | PxQ
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| the amount that a firm pays for inputs used to produce goods or services | Total cost
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| What are the 3 problems that a firm must solve to achieve profit maximization? | how to make the product, what is the cost of making the product, how much can the seller get for the product in the market
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| period of time when some of the firms inputs cannot be changed | short run
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| period of time when all of the firms inputs can be changed | long run
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| Is this short run or long run: you can buy another oven or build a new kitchen | long run
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| an input that cannot be changed in the short run and that stays the same regardless of how much output is produced | fixed factor of production
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| an input that can be changed in the short run and that changes if the level of output changes | variable factor of production
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| marginal product increases with ____ | the first couple of workers
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| eventually marginal product follows the _____ | law of diminishing returns
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| Can marginal product be negative? | Yes
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| Total Cost= | fixed cost + variable cost
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| Marginal Cost= | change in variable cost/ change in quantity
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| Marginal Revenue= | change in TR/ change in Q= price
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| profit increases as long as ... | MR > MC
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| ATC falls as output increases | economies of scale
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| ATC does not change as output increases | constant returns to scale
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| ATC increases | diseconomies of scale
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| a firms total costs of operation has two components | explicit and implicit costs
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| requires a firm to spend money | explicit costs
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| opportunities that could have generated revenue if the firm had invested its resources in another wat | implicit costs
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| when companies report their profits, they provide ____ | accounting profits
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| Accounting profits= | TR- explicit costs
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| are accounting profits accurate representation of how they business is doing? | no
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| Economic profits= | accounting profit- implicit costs
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| suggests that if all firms have identical cost structures, all firms should earn zero economic profit in the long run | competitive market theory
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| produce if profits are positive, exit is profits are negative | long run
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| produce if profits are positive, produce if losses from producing are smaller than losses from not producing and shut down in vice versa | short run
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| if AVC is less than or equal to P which is less than ATC | exit in the long run
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| if P < AVC | shut down in the short run
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