Terms
Economic profits mean?
Takes into account the opportunity cost of the resources used in the business, and is calculated as total revenue minus total opportunity cost.
MR=MC
Variable
What does MES stand for when talking about LRATC curves?
The point on the LRATC (long-run average cost) curve where a business can operate efficiently and productively at the lowest possible unit cost.
What is the term for the change in behavior by buyers or sellers in the market in response to a change in price for a good or service?
Elasticity
What is economies of scale?
Referring to the idea that larger companies gain cost advantages from increasing in levels of output
Does an increase in demand cause a change in the long-run equilibrium price?
No!
3 examples of a fixed cost
Rent, Salary, equipment, insurance payments, advertising
What is ATC, AVC and AFC?
ATC = Average total cost
AVC = Average Variable cost
AFC = Average Fixed cost
Many foreign companies operate in the FTZs of Costa Rica. These are economic areas that are typically removed from exempt from customs duties and receive other tax benefits. What does the term FTZ stand for?
Free Trade Zone
What is plant capacity?
Refers to the maximum output that a manufacturing facility can produce under normal operating conditions over a specific period.
Firms do not have influence on the market price.
Does AFC ever reach zero?
What is LRATC and SRATC?
Long-run average total cost and Short-run average total cost
There's a three-word economic term abbreviated FoP that stands for the inputs needed to create a good or service, and was originally defined to include land, labor, and capital. What do these letters stand for?
Factors of Production
What is the shut-down rule and when does it occur?
When a firm decides to stop production, when MR falls below AVC.
Assume that a profit-maximizing firm is perfectly competitive in both the output and the factor markets and is at its long-run equilibrium. The firm's output is 100 units, its total revenue is $600.00, and the fixed cost of production is $50.00. Based on this information, what is the marginal cost and the average variable cost?
Its marginal cost is $6.00, and its average variable cost is $5.50
If the AFC curve is missing from a graph, how are you able to calculate the AFC or Fixed cost?
The distance between AVC and ATC will always be AFC.
TC-VC=FC
Marginal Revenue, Demand, Average Revenue, Price
First coined and explained by 19th-century mathematician William Forster Lloyd, what is the "tragic" term in economics which describes a situation where individual users act independently according to self-interest and ultimately deplete a resource through uncoordinated action
Tragedy of the Commons
What are at least 3 characteristics of perfect competition?
All firms sell an identical product. It's a commodity or homogeneous.
All firms are price takers. They can't influence the market price of their products.
Market share doesn't influence prices.
Buyers have complete or perfect information about the product being sold and the prices charged by each firm in the past, present, and future.
Capital resources and labor are perfectly mobile.
Firms can enter or exit the market without cost.
What happens to price if a firms demand curve shifts to the right?
Price will increase
4 examples of variable costs?
Shipping costs, Hourly wages, Raw materials, Commissions, Utilities,
Suppose a perfectly competitive firm faces a market price of $10 per unit of output. Its marginal cost (MC) curve is given by the equation MC=2Q+4MC = 2Q + 4MC=2Q+4, where Q is the quantity of output produced.
(a) Determine the profit-maximizing level of output for the firm.
(b) If the firm’s average total cost (ATC) at this level of output is $8, calculate the firm’s total profit.
The profit-maximizing level of output is 3 units.
The firm's total profit is $6.
What "C" word is generally applied to the school of thought in economics that flourished in Britain in the 18th & early 19th century with Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Robert Malthus, and John Stuart Mill producing theories of market economies as largely self-regulating systems?
Classical Economics