microecon chapter 10.1 – Flashcards
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firm
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A ________ is an institution that hires factors of production and organizes them to produce and sell goods and services.
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maximize profit
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A firm's goal is to ___________.
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either eliminated or taken over by another firm that seeks to maximize profit.
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If the firm fails to maximize its profit, the firm is ____________
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that the firm pays the correct amount of *tax* and to show its *investors* how their funds are being used.
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*Accountants* measure a firm's profit to ensure
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total revenue minus total cost.
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Profit (JUST PROFIT) equals
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Revenue Canada
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Accountants use _________ rules based on standards established by the accounting profession.
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*predict* the firm's decisions, and the goal of these decisions is to maximize economic profit.
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*Economists* measure a firm's profit to enable them to
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opportunity cost
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*Economic profit* is equal to total revenue minus total cost, with total cost measured as the _________ of production.
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value of the best alternative use of the *resources* that a firm uses in production.
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A firm's opportunity cost of production is the
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- Bought in the market - Owned by the firm - Supplied by the firm's owner
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A firm's opportunity cost of production is the sum of the cost of using resources
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because the firm could have bought different resources to produce some other good or service.
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Why is the amount spent by a firm on resources bought in the market is an opportunity cost of production?
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because it could have sold the capital and rented capital from another firm.
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If the firm owns capital and uses it to produce its output, then the firm incurs an opportunity cost. why?
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itself
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The firm implicitly rents the capital from ______
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implicit rental rate of capital
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The firm's opportunity cost of using the capital it owns is called the _________.
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1. Economic depreciation 2. Interest forgone
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The implicit rental rate of capital is made up of
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Economic depreciation
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__________ is the change in the market value of capital over a given period.
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Interest forgone
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_________ is the return on the funds used to acquire the capital.
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entrepreneurship and labour
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The owner might supply both ___________
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profit
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The return to entrepreneurship is ________
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normal profit
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The profit that an entrepreneur can expect to receive on average is called ____________.
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opportunity cost
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Normal profit is the cost of entrepreneurship and is an _________ of production.
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wage
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In addition to supplying entrepreneurship, the owner might supply labour but not take a _______.
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wage income forgone by not taking the best alternative job
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The opportunity cost of the owner's labour is the
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1. What to produce and in what quantities 2. How to produce 3. How to organize and compensate its managers and workers 4. How to market and price its products 5. What to produce itself and what to buy from other firms
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To maximize profit, a firm must make five basic decisions:
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Technology constraints Information constraints Market constraints
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The firm's profit is limited by three features of the environment:
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Technology
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________ is any method of producing a good or service.
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advances
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Technology ________ over time.
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hires more resources
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Using the available technology, the firm can produce more only if it ________, which will increase its costs and limit the profit of additional output.
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the present or the future.
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A firm never possesses complete information about either ________
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quality and effort; current and future buying plans; competitors
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A firm is constrained by limited information about the _______ of its workforce, __________ of its customers, and the plans of its ___________. The cost of coping with limited information limits profit.
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willingness to pay; prices and marketing efforts of other firms.
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What a firm can sell and the price it can obtain are constrained by its customers' ________ and by the _________
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limited by the willingness of people to work for and invest in the firm.
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The resources that a firm can buy and the prices it must pay for them are __________
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profit
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The expenditures that a firm incurs to overcome *market constraints* limit the _______ that the firm can make.
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customers' willingness to pay, the prices and marketing efforts of other firms, willingness of people to work for and invest in the firm
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list the market constraints
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implicit rental rate *e.g The fact that Ned runs a hair salon out of the first floor of his? house, implies that Ned operates his business using his own space for which he does not pay a rent. So it illustrates an implicit rental rate of capital.
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An ________ of capital is an opportunity cost incurred by a firm when it uses a factor of production for which it does not make a direct money payment.
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entrepreneurship; opportunity
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Normal profit is the return to? _____. Normal profit is part of a? firm's _____ cost because it is the cost of not running a firm.
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A shopping mall produces retail services. ***A technology is any method of producing a good or service.
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Which of the following is an example of a technology?? Factory A produces a good by using fewer resources than factory B. A shopping mall produces retail services. Sam enjoys listening to music. Efficient firms produce goods at lower cost.
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maximize? profit; either eliminated or bought by other firms that do seek to maximize profit
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The fundamental goal of a firm is to? _______. If a firm fails in this? goal, it is? _______.
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ensure that the firm pays the correct amount of income tax and to show its investors how their funds are being? used; enable them to predict the? firm's decisions
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An accountant calculates a? firm's cost and profit to? _______. An economist calculates a? firm's cost and profit to? _______.
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the cost of using resources bought in the? market, owned by the firm and supplied by the? firm's owner
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A? firm's opportunity cost includes? _______.
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the cost of a firm using its own capital or the cost of resources supplied by the? firm's owner.
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An accountant does not include
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running another firm
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The factor of production that organizes a firm and makes its decisions is entrepreneurship. Entrepreneurship might be supplied by the? firm's owner or by a hired entrepreneur. Normal profit is part of a? firm's opportunity cost because it is the cost of a forgone alternative —
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NO, equipment is not used up right away
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Do we include 'equipment' in oppourtunity cost of production calculations?
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things that were bought, e.g. computer lease, supplies, etc, but NOT equipment!
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What constitutes cost of resources bought in the market?
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economic depreciation, forgone interest
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What constitutes cost of resources owned by the firm?
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forgone wages, normal profit!
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What constitutes cost of resources supplied by the owner?
