Costs and Profits
This term describes direct, out-of-pocket business payments such as wages, rent, and utilities.
What are explicit costs?
This economic time period occurs when at least one production input remains fixed.
What is the short run?
This cost does not change as a business increases or decreases its production.
What is fixed cost?
This market structure has many sellers offering identical products.
What is perfect competition?
This market structure has many businesses selling similar but differentiated products.
What is monopolistic competition?
This market structure is dominated by a small number of major firms.
What is an oligopoly?
This market structure consists of one seller offering a product with no close substitutes.
What is a monopoly?
This cost represents the opportunity cost of an owner's time or personally owned resources.
What is an implicit cost?
This measures the additional output produced by hiring one more worker.
What is marginal product?
These costs change as the quantity of output changes.
What are variable costs?
This term describes a firm that must accept the market price.
What is a price taker?
Coffee shops often compete through quality, location, service, and this marketing activity.
What is advertising (or branding)?
Airlines, automobile manufacturers, and wireless carriers are examples of industries that can resemble this market structure.
What is oligopoly?
Unlike a price taker, a monopoly has some ability to influence the price it charges and is called this.
What is a price maker?
A business earns $100,000 in revenue and pays $70,000 in explicit costs. This is its accounting profit.
What is $30,000?
This occurs when additional workers eventually contribute smaller increases in output.
What is diminishing marginal productivity?
This is the formula for calculating total cost.
What is fixed cost plus variable cost?
This agricultural commodity is an example of a market that comes close to perfect competition.
What is wheat?
This term describes how businesses make their products distinct from competitors' products.
What is product differentiation?
This term describes firms considering how rivals will react to changes in prices, output, or advertising.
What is strategic interdependence?
This essential service can be a natural monopoly because constructing competing pipe networks is extremely expensive.
What is a local water utility?
A firm earns $200,000 in revenue, pays $130,000 in explicit costs, and gives up $40,000 in potential salary. This is its economic profit.
What is $30,000?
A factory's total output increases from 180 to 205 units after hiring another worker. This is that worker's marginal product.
What is 25 units?
A company has $4,000 in fixed costs and $8,000 in variable costs. This is its total cost.
What is $12,000?
When firms earn economic profits in perfect competition, new firms tend to take this action.
What is entering the market?
This explains why one coffee shop might successfully charge more than another selling similar drinks.
What is customer preference for its quality, atmosphere, location, or service?
These obstacles, including high start-up costs and scale advantages, limit the entry of new competitors.
What are barriers to entry?
Exclusive legal rights, control of resources, and expensive infrastructure are examples of these.
What are barriers to entry?
A business reports $50,000 in accounting profit but only $10,000 in economic profit. This is the amount of implicit costs it incurred.
What is $40,000?
A restaurant builds a larger kitchen and installs additional ovens. This is the type of production decision it is making.
What is a long-run production decision?
A firm has total costs of $15,000 and produces 500 units. This is its average total cost.
What is $30 per unit?
When firms experience economic losses, some exit the market. This is the direction market supply shifts, pushing price upward.
What is left (a decrease in supply)?
When new competitors enter a profitable monopolistically competitive market, this generally happens to existing firms' economic profits.
What is a decrease in economic profits?
Before cutting fares, an airline must consider this possible action by its competitors, which could reduce the advantage of its own price cut.
What is matching or lowering their fares?
Even a monopoly cannot raise prices without consequences because higher prices can reduce this.
What is quantity demanded?
FINAL JEOPARDY!
The Cost of Doing Business
Accounting and Economic Profit for: A restaurant earns $300,000 in annual revenue and pays $220,000 in explicit costs. The owner gave up a $55,000 annual salary to operate the restaurant.
What are $80,000 in accounting profit and $25,000 in economic profit?