Unit 5: production, costs, and profit maximization

Economics 1014 with Pereya at University of Missouri- Columbia

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Created: 2011-12-08
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above normal rate of return

if that producer is earning a positive economic profit

accounting cost

to calculate profit an accountant only considers the explicit costs of production

accounting profit

the difference between the revenue earned by the producer when selling his/her product and the accounting costs incurred in producing that product

average fixed cost (AFC)

the share of fixed cost that can be attributed to each unit of production

average cost pricing regulation

a natural monopoly is allowed to operate as a monopolist but may be regulated by governmental authorities to prevent the charging of monopoly prices

average productivity of labor

the amount of output produced by a worker on average (APL=Q/L)

average variable cost (AVC)

the share of total cost that can be attributed to each unit of production (ATC=AFC+AVC)

below normal rate of return

producer is earning a negative economic profit/economic loss

collusion

producers act together to eliminate or reduce the competition that exists between them (illegal)

crowding of fixed inputs

producer reaches a production level where there are too many variable inputs assigned to too few fixed inputs

depreciation

the loss of a value a piece of property/equipment incurs while being used in the production process

duopoly

two producers of a product

economic cost

an economist considers all opportunity costs of production, both the explicit costs and the implicit costs

explicit costs

costs that involve actual dollars lost to the producer, either through direct payment to workers, suppliers, etc

economic profit

the difference between the revenue earned by the producer when selling his/her product and the economic costs incurred in producing that product (measures the economic efficiency of the production process)

fixed cost (FC)

the amount a producer has to pay for fixed inputs, that cannot be vatied when more or less is produced

fixed input

used to produce a product but cannot be changed in size or quantity regardless of the level of production

imperfect competition

neither perfectly competitive nor monopolistic

interest

the payment someone with money earns when that money is loaned out to another and the payment someone makes when that money is borrowed

long-run production decision

making production decisions that involve only variable inputs

marginal cost (MC)

the change in the cost of production that a producer incurs when he marginally increases or decreases production level (MC=^VC/^Q)

marginal productivity of labor (MPL)

the increase in production a producer will experience when it hires a marginal unit of labor (MPL=^Q/^L)

marginal revenue (MR)

the change in the amount of revenue that a producer earns when he marginally increases or decreases production level

monopolistically competition

imperfectly competitive but closer to the perfect competition extreme than to the monopoly extreme

monopoly

only one large producer of a product with no good substitutes and where there are insurmountable barriers to entry

natural monopoly

when the production process involves such large fixed costs and small marginal costs that the market can only support one producer

normal rate or return

if the producer is earning a zero economic profit

oligopoly

when a market is imperfectly competitive but closer to the monopoly extreme than to the perfect competition extreme

perfect competition

if no single firm has any individual control over the market price

price discrimination

occurs when a producer is able to charge more than one price for its product

price maker

producer has some control over the market price

price taker

producer has no control over the market price

short-run production decision

producer makes production decisions that involve at least one fixed input

short-run production function

illustrated the relationship between the amount of variable labor input used by a producer and the amount of output that can be generated by that input

teamwork and specialization

firm experiencing the benefits of teamwork and specialization if by hiring more workers those workers are able to divide up the jobs and get increased efficiency so that the marginal productivity of labor rises

total cost (TC)

amount a producer has to pay for all inputs, both those are fixed as well as those that are variable (TC=FC+VC)

total revenue (TR)

the full amount a producer is able to earn when he produces and sells a product [TR=(price charged)*(quantity sold)]

variable inputs

an input that is used to produce a product where more can be used if the producer wants to produce more and less can be used if the producer wants to produce less

variable cost (VC)

the amount a producer has to pay for variable inputs

About this deck

By: Caitlin Smith
Created: 2011-12-08
Size: 39 flashcards
Views: 31

About StudyBlue

“Simply amazing. The flash cards are smooth, there are many different types of studying tools, and there is a great search engine. I praise you on the awesomeness.”
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