Vocab
What is marginal cost?
It is the cost added by producing one additional unit of a product or service.
What is marginal benefit?
It is the maximum amount of money a consumer is willing to pay for an additional good or service
Economic surplus is also known as _______ & _________
Social Surplus and Total Surplus
Name some possible implicit costs for starting a pizza restaurant.
Wages lost from starting a job, revenue earned from starting a burger joint and others
What is accounting profit?
Total Revenue - Explicit Costs
What is economic surplus?
Consumer Surplus + Producer Surplus
If social surplus at output 4 is less than the social surplus at output 5 then we know what about the market at output 4.
It is not market efficient.
What are some explicit costs of starting a pizza restaurant?
Wages to employees, purchase of materials, and others
What are implicit costs?
What are explicit costs?
They are out of pocket costs (actual payments)
Where does market efficiency happen?
This happens at equilibrium under most circumstances.
We have:
Implicit costs of $500
Explicit costs of $500
Revenue of $1000
What is the accounting profit?
$500
TR-EC
What is economic profit?
Total Revenue - implicit costs - explicit costs
What is market efficiency?
It is when resource allocation maximizes total economic surplus.
If MB is 8 at the allocatively efficient output, what is MC?
It is 8. MB=MC
We have:
Implicit costs of $500
Explicit costs of $500
Revenue of $1000
What is the economic profit?
0
TR-IC-EC