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Explicit cost:pay out of pocket.Implicit cost:not a financial cost. Economic profit:total revenue minus total costs including implicitcosts; usually less than accounting profits; firms want to maximizethis and not accounting profit; stockholders and entrepreneurs want to keep an eye on.Accounting profit:total revenue minus explicit costs.Fixed costs: costs that do not vary with output; flat rate.Variable costs:costs that do vary with output; electricity, maintenance, storage, transportation. Total costs = FC + VC11.4******Marginal revenue:change in total revenue from selling an additional unit; price for a firm in a competitive industry.Marginal cost: change in total cost from producing an additional unit; to maximize profit, MR >(=) MC; increase output until P = MC.*When P > MC additional barrels means more profit but when it’s the opposite, producing less is more profit. *Average cost:cost per barrel, AC = TC/Q*Firms seek profits so in the long run firms will enter an industry when P > AC and exit when P < AC.Zero profits (normal profits): P = AC; at this price, the firm is covering all of its costs, including enough to pay labor and capital their ordinary opportunity costs. *A firm is taking a loss when TR < TC.**A firm should shut down immediately only if P < VC/Q (= AVC)* 11.6Shut down rule:shut down if you cannot cover your variable costs.Increasing cost industry:an industry in which industry costs increase with greater output; upward supply curve; oil, steel, nuclear physicists.Constant cost industry:an industry in which industry costs do not change with greater output; flat supply curve; domain name registration, spoons, waiters; competitive industry qualifications; an industry that can expand or contract without hanging the prices of its inputs. Decreasing cost industry:an industry in which industry costs decrease with an increase in output; downward supply curve; carpets in Dalton, GA, Silicon Valley, flower market).To find Q supplied by industry, add Q’s supplied by each firm Chapter 12 Competition and the Invisible Hand:Invisible hand:with the right institutions. Individuals acting in their self-interest can generate outcomes that are neither part of their intention nor design but that nevertheless have desirable properties.1) the minimization of total industry costs of production, self interest works to minimize the total costs of production, P = MC1 = MC2 = … = MCn. All firms in competitive industry, MC=MC2) the balance of industries, the self interest of entrepreneurs causes them to enter and exit industries in such a way that the totalvalue of all production is maximized; profit rate in all competitive industries tends toward the same level. Elimination principle:above-normal profits (temporary) (must innovate) are eliminated by entry and below-normal profits are eliminated by exit.If market price = x, then firm should produce units of output where MC=market price (x)Chapter 13 Monopoly: Market power:power to raise price above marginal cost without fear that other firms will enter the market; patentsMonopoly:firm with market power.To max profit, produce until MR=MCEfficient amount of production/output: P=MCThe more inelastic demand curve, the more monopolist raise price above marginal cost (big markup)Formulas: TR= PxQ , TC=FC+VC, P=TR-TC, MR=ΔTR/ΔQ , MC=ΔTC/ΔQ, AC= TC/QP=(Price-AC)Q, Max profit= MR>MC