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What is Total Product (TP)?
Total output produced by a firm.
What is Marginal Product (MP)?
Additional output from one more unit of input.
What is Average Product (AP)?
Total product divided by the quantity of input (TP/Q).
What are Fixed Costs (FC)?
Costs that do not vary with output.
What are Variable Costs (VC)?
Costs that change with output.
What is Total Cost (TC)?
Sum of fixed and variable costs: TC = FC + VC.
What is Average Total Cost (ATC)?
Total cost divided by quantity: ATC = TC / Q.
What is Average Fixed Cost (AFC)?
Fixed cost divided by quantity: AFC = FC / Q.
What is Average Variable Cost (AVC)?
Variable cost divided by quantity: AVC = VC / Q.
What is Marginal Cost (MC)?
Additional cost of producing one more unit.
What is economic profit?
Total revenue minus explicit and implicit costs.
What is accounting profit?
Total revenue minus explicit costs.
Define marginal revenue (MR).
Additional revenue from selling one more unit.
How would a subsidy on raw materials affect a firm's cost curves?
It would likely decrease variable costs, shifting AVC and ATC downward.
How might increased regulation affect a firm's long-run average total cost?
It could lead to diseconomies of scale due to increased compliance costs.
How does a price ceiling affect firms in a perfectly competitive market?
It can lead to shortages and reduce firms' profits, potentially causing some firms to exit the market.
How does a tax on each unit of output affect the firm's cost curves and profit-maximizing output?
It increases the marginal cost (MC) and average total cost (ATC), leading to a decrease in the profit-maximizing output.
How does a government-imposed minimum wage affect a firm's cost structure?
It increases the variable costs (VC) and average variable cost (AVC), potentially leading to a decrease in the profit-maximizing output.
How does a government subsidy on capital investment affect a firm's long-run average total cost (LRATC)?
It can lead to economies of scale and a decrease in the LRATC, as the firm can produce more output at a lower cost.
How does a change in environmental regulations affect a firm's cost curves and production decisions?
It can increase the firm's fixed costs (FC) and variable costs (VC), leading to a decrease in the profit-maximizing output and potentially causing some firms to exit the market.
How does a government policy promoting free trade affect firms in a perfectly competitive market?
It can increase competition and decrease prices, leading to a decrease in profits for some firms and potentially causing some firms to exit the market.
How does a government policy supporting research and development (R&D) affect a firm's long-run average total cost (LRATC)?
It can lead to technological advancements and economies of scale, resulting in a decrease in the LRATC.
How does a government policy restricting immigration affect a firm's labor costs and production decisions?
It can increase labor costs and decrease the availability of labor, leading to a decrease in the profit-maximizing output and potentially causing some firms to exit the market.
On a cost curve graph, what does the intersection of MC and ATC signify?
It signifies the minimum point of ATC, where the firm is producing at the lowest average total cost.
How does the shape of the LRATC curve indicate economies or diseconomies of scale?
A decreasing LRATC indicates economies of scale, while an increasing LRATC indicates diseconomies of scale.
In a perfectly competitive market graph, what does the horizontal demand curve signify?
It signifies that the firm is a price taker and can sell any quantity at the market price.
What does the area between the ATC curve and the demand curve represent for a firm in a perfectly competitive market?
If the demand curve is above the ATC curve, the area represents economic profit. If the demand curve is below the ATC curve, the area represents economic loss.
How does an increase in fixed costs affect the ATC curve?
It shifts the ATC curve upward, but does not affect the MC curve.
How does an increase in variable costs affect the AVC and MC curves?
It shifts both the AVC and MC curves upward.
In the graph of the perfectly competitive firm, what is the relationship between the demand curve, marginal revenue (MR), and price?
The demand curve, marginal revenue (MR), and price are all equal and represented by a horizontal line at the market price.
In a graph of cost curves, how do you identify the profit-maximizing level of output?
The profit-maximizing level of output is where the marginal cost (MC) curve intersects the marginal revenue (MR) curve.
In a graph of the long-run average total cost (LRATC) curve, what does the minimum point represent?
The minimum point represents the minimum efficient scale, where the firm is producing at the lowest possible average cost in the long run.
How can you determine whether a firm is making a profit or loss by looking at its cost curves and demand curve?
If the demand curve is above the average total cost (ATC) curve at the profit-maximizing quantity, the firm is making a profit. If the demand curve is below the ATC curve, the firm is making a loss.