Chapter 13

Accounting profit is equal to

total revenue minus the explicit cost of producing goods and services

If Kevin's children run a lemonade stand for a day and sell 200 glasses of lemonade at $0.50 each, their total revenues are

$100

Adam Smith used a famous example of what type of firm to illustrate economies of scale?

A pin factory

total revenue equals

Price x Quantity

Which of these assumptions is often realistic for a firm in the short run?

The firm can vary the number of workers but not the size of the factory

Fixed costs can be defined as costs that

are incurred even if nothing is produced

Implicit costs

do not require an outlay of money by the firm

Total cost can be divided into two types of costs:

fixed costs and variable costs

A production function describes

how a firm turns inputs into output

One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run,

in the short run the size of the factory is fixed

In the long run,

inputs that were fixed in the short run become variable

The length of the short run...

is different for different types of firms

Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers

labor to be variable and building to be fixed

Economies of scale occur when a firm's

long-run average total costs are decreasing as output increases.

Economist normally assume that the goal of a firm is to

maximize its profits

Explicit costs...

require an outlay of money by the firm

Total cost is the

the market value of the inputs a firm uses in production

Marginal cost equals

the slope of the total cost curve

In the short run, a firm incurs fixed costs

whether it produces output or not

Economic profit

will never exceed accounting profit