Microeconomics Chapter 6
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
