Microeconomics Chapter 6

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Tom quit his $65,000 a year corporate lawyer job to open up his own law practice. In Tom's first year in business his total revenue equaled $150,000. Tom's explicit cost during the year totaled $85,000. What is Tom's economic profit for his first year in business?

$0

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 130). Then the marginal product of the 13th worker is

8 units of output

Total revenue minus only explicit costs is called

accounting profit

If marginal cost is equal to average total cost, then

average total cost is minimized

Total cost can be divided into two types of costs

fixed costs and variable costs

The fundamental reason that marginal cost eventually rises as output increases is because of

diminishing marginal product

The difference between accounting profit and economic profit is

implicit cost

A difference between explicit and implicit costs is that

implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do

Firms may experience diseconomies of scale when

large management structures are bureaucratic and inefficient

When a firm experiences constant returns to scale,

long-run average total cost is unchanged, even when output increases.

Economists normally assume that the goal of a firm is to

maximize its profit

the marginal product of labor can be defined as the change in

output divided by the change in labor

total revenue equals

price x quantity

A production function is a relationship between inputs and

quantity of output

Economic profit is equal to total revenue minus the

sum of explicit and implicit costs

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

the size of the factory is fixed

An example of an opportunity cost that is also an implicit cost is

the value of a business owner's time


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