Formulas
Definitions
Input/Output
100
What is the formula for Accounting Profit?
Accounting Profit = Total Revenue-Explicit Cost
100
Define Fixed Costs (FC).
Fixed costs are explicit costs that do not change in relation to the quantity produced.
100
Increasing Marginal Returns (of labor) occur when: a) AFC>AVC b) Marginal returns are better than they were last period. c)ATC
d)Each additional worker produces more than the last.
200
What is the formula for Economic Profit?
Economic Profit= TR-Explicit Cost-Implicit Cost
200
Define Variable Costs (VC).
Variable costs are explicit costs that change directly in relation to the quantity produced.
200
Decreasing Marginal Returns (of labor) occur when: a) AFC>AVC b) Marginal returns are worse than they were last period. c)Each additional worker produces less than the last d)The business is losing money if they hire more.
c)Each additional worker produces less than the last
300
What is the formula for Average Fixed Cost?
AFC= Fixed Cost/Quantity
300
Define marginal cost (MC)
Marginal cost is the additional cost incurred from producing one more unit of product.
300
Negative Returns occur when: a) Government is involved. b) Too many people are hired. c) Each additional worker causes the business to produce less. d) All of the above.
d) All of the above.
400
What is the formula for Total Cost?
TC= Fixed Cost + Variable Cost
400
Define marginal product.
Marginal product is the additional output produced by adding 1 more unit of input.
400
Draw the graph that shows the relationship between marginal product and marginal labor.
http://wwwnc.cdc.gov/eid/images/70-0282-F2.jpg
500
MP>MCL What does the above formula stand for, and what would you do if this formula were true for your business?
Marginal Product > Marginal Cost of Labor I would hire additional workers because they would produce a level of marginal output greater than what I have to pay them for working.
500
Considering economic profit, rather than accounting profit, helps us make more optimal decisions because_____________________________________________________________________.
Opportunity (implicit) cost is taken into account. It's helpful in making decisions among various alternatives.
500
Where on the marginal labor/marginal output graph is profit maximized, or are we not able to tell?
We do not know without more information.
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