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Chapter 7 Notes.docx

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Kalina Staub

Chapter 7 Notes: Producers in the Short Run While analyzing the supply side of the market we will have to make certain assumptions: 1. A firm is a ________________ decision-making unit. This allows up to abstract from the firm’s governance or financial structures. 2. A firm’s main goal is to ____________________________________. Production A production function gives the maximum amount of _________________ the firm can produce using with different combinations of its inputs, ____________________________ and __________________. = , Profits Explicit costs are the costs of the firm that involve the purchase of goods and services, or where ________________________ actually changes hands. Accounting profits= Revenue- _______________________ Implicit costs do not include any sort of market transaction, but are __________________________ for the firm. a) b) Economic Profits=Revenue-(_________________________ + ____________________________) Profit maximization We assume firms want to choose their inputs (and thus output) in order to maximize their _________________________ profits. = Time Horizons The Short Run (SR) – a time period over which the quantities of certain inputs (most commonly _____________________) cannot be changed; we call these ______________________. Inputs that can be changed in the short run are called ___________________________. The Long Run (LR) is a time period in which all inputs can be changed, but technology cannot change The very long run (VLR) is a time period long enough for production technology to change, e.g. Production in the Short Run Total Product (TP) is the total amount produced by a firm during some time period Average Product of Labor (AP L) is the to
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