Econ 1 final
Imperfectly Competitive Firms
A firm that has at lease some control over the market price of its product.
Price Takers
A firm that has no influence over the price at which it sells its product.
Profit Maximizing Firm
A firm whose primary goal is to maximize the difference between its total revenues and total costs.
Profitable Firm
A firm whose total revenue exceeds its total cost.
Perfectly Competitive Market
A market in which no individual supplier has significant influence on the market price of the product.
Short Run
A period of time sufficiently short that at least some of the firm's factors of production are fixed.
Law of Diminishing Returns
A property of the relationship between the amount of a good or service produced and the amount of a variable factor required to produce it; the law says that when some factors of production are fixed, increase production of the good eventually requires ever-larger increases in the variable factor.
Invisible Hand Theory
Adam Smith's theory that the actions of independent, self-interested buyers and sellers will often result in the most efficient allocation of resources. f
Economic Loss
An economic profit that is less than zero
Factors of Production
An input used in the production of a good or service.
Variable Factor of Production
An input whose quantity can be altered in the short run.
Fixed Factor of Production
An input whose quantity cannot be altered in the sort run.
Marginal Cost
An output changed from one level to another, the change in total cost divided by the corresponding change in output.
Allocative Function of Price
Changes in Prices direct resources away from overcrowded markets and toward markets that are undeserved.
Rationing Function of Price
Changes in prices distribute scarce goods to those consumers who value them most highly
Explicit Costs
The actual payments a firm makes to its factors of production and other suppliers.
Producer Surplus
The amount by which price exceeds the seller's reservation price.
Accounting Profit
The difference between a firm's total revenue and its explicit costs.
Normal Profit
The opportunity cost of the resources supplied by a firm's owners, equal to accounting profit minus economic profit.
Implicit Costs
The opportunity costs of the resources supplied by the firm's owners.
Total Cost
The sum of all payments made to the firm's fixed and variable factors of production.
Fixed Cost
The sum of all payments made to the firm's fixed factors of production.
Variable Cost
The sum of all payments made to the firm's variable factors of production.
Profit
The total revenue a firm receives from the sale of its product minus all costs-explicit and implicit-incurred in producing it.
Average Total Cost
Total cost divided by total output.
Average Variable Cost
Variable cost divided by total output.
Long Run
a period of time of sufficient length that tall the firm's factors of production are variable.
Economic Profit (Excess Profit)
the difference between a firm's total revenue and the sum of its explicit and implicit costs.
