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