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 ____________________________________.
A production function gives the maximum amount of _________________ the firm can
produce using with different combinations of its inputs, ____________________________ and
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.
Economic Profits=Revenue-(_________________________ + ____________________________)
We assume firms want to choose their inputs (and thus output) in order to maximize their
= 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
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