Glossary for Lecture 5

Glossary for Lecture 5 - Fixed factor of production An...

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A Glossary of Important Terms – Lecture 5 Introduction to Microeconomics (E, F, G) Fall 2008 Prepared by Sylvie Démurger Profit The profit earned by a firm is the total revenue it receives from the sale of its product minus all costs—explicit and implicit—incurred in producing it. Profit-maximizing firm A firm whose primary goal is to maximize the difference between its total revenues and total costs. Perfectly competitive market A market in which no individual supplier has significant influence on the market price of the product. Ex : Wheat, corn, or rice markets. Price-taker A firm that has no influence over the price at which it sells its product. Ex : a rice producer in Guangxi. Contrast with price setter . Ex : Microsoft operating systems, Intel microprocessors. Factor of production An input used in the production of a good or service. Ex : land, labor, capital, management or entrepreneurship.
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Unformatted text preview: Fixed factor of production An input whose quantity cannot be altered in the short run. Ex : land, capital. Variable factor of production An input whose quantity can be altered in the short run. Ex : labor, seeds, fertilizer. Long run Time period over which all resources may be varied. Fixed cost (FC) The sum of all payments made to the firm’s fixed factors of production. Variable cost (VC) The sum of all payments made to the firm’s variable factors of production. Total cost (TC) The sum of all payments made to the firm’s fixed and variable factors of production: TC = FC + VC. Average variable cost (AVC) Variable cost divided by total output: AVC = VC / Q. Average total cost (ATC) Total cost divided by total output: ATC = TC / Q. Marginal cost (MC) The change in total cost divided by the corresponding change in output....
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