Define the term bottom line
refers to accounting profit - the profit that you actually make (total revenue - explicit costs)
What is a firms goal
Maximize profits
Define Total Revenue
The amount a firm receives from selling a good or a service.
Define Total Cost
The amount the firm spends on inputs to make the goods and services. (this includes one-time expenses alongside ongoing expenses)
Define Profit
Profit is the difference between total revenue and total cost (total rev - total cost = profit)
Define Fixed Costs
Costs that don’t depend on quantity sold, this is things like rent for the store, salaries for the workers.
Define Variable Costs
Costs that are dependent on the quantity sold. (if a firm stopped producing stuff..the VC will be zero.)
Define Explicit Costs
Money the firm ACTUALLY spends to operate
Define Implicit Costs
Represents the opportunity cost to pursuing your business
Define Accounting Profit
The amount the firm made
Define Economic Profit
The amount the firm would’ve made had they forgone another opportunity.
(T/F) Investors of the company care more about the Economic Profit rather than the Accounting Profit
True, they would much rather know about what opportunities would make them the most money.
Define Inputs
How the goods and services are made. Inputs are things like raw materials, workers, resources.
Define Outputs
The goods and services produced.
What is Production Function?
The relationship between the quantity of inputs and outputs
Define Marginal Product
The additional output produced by adding another input.
Define Diminishing Marginal Product
the more additional inputs provided the less contribution each input provides.
Define Average Product
Its an equation to determine how much an additional worker contributes to the production of output.
(Total output by the number of workers)
(T/F) Costs remain the same for each additional worker despite them not generating the same production as other employees
True
Define Marginal Cost
The costs the firm incurs by adding an additional worker
Define Returns to Scale
The relationship between the quantity of output and the average cost
Define Economies of scale
when a company scaling DECREASES their average costs
Define diseconomies of scale
when a company scaling INCREASES their average costs
Define constant returns to scale
when a company scaling neither increases or decreases their average costs
