Define the following terms and explain their importance to the study of economics
a. marginal cost
b. marginal revenue
c. short-run equilibrium
d. supply curve of the firm
e. economic profit
a. Marginal cost is the cost to the firm of producing and selling an additional unit of the good.
b. Marginal revenue is the amount of extra revenue the firm receives for producing and selling one more unit of a good.
c. Short-run equilibrium occurs in the time period in which some commitments cannot be changed. The number of firms in the industry cannot be changed. The competitive firm will equate P to MC > AVC to choose profit-maximizing (or loss-minimizing) price and output. If price is below the minimum of AVC, the firm will minimize losses by shutting down.
d. The short-run supply curve for the competitive firm is MC > AVC. If price is below the minimum of AVC, the firm will minimize losses by shutting down.
e. Economic profit equals net earnings, in the accountant's sense, minus the opportunity cost of capital and of any other inputs supplied by the firm's owners. It is assumed that firms seek to maximize economic profits. In a competitive industry in the long run, economic profits are zero.
You might also like to view...
If the United States exports planes to Brazil and imports ethanol from Brazil, the price received by U.S. producers of planes ________ and the price received by Brazilian producers of ethanol ________
A) does not change; does not change B) rises; rises C) rises; falls D) falls; falls E) falls; rises
People like consuming peanut butter and jelly together. The price of peanuts increases. At the same time, we see the price for Jelly rise. This would make the price for peanut butter_____________ and the quantity demanded for peanut butter ____________
a. Uncertain; decreases b. Decreases; increases c. Decreases; uncertain d. Increases; uncertain