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AFC: The abbreviation for average fixed cost, which is fixed cost per unit of output, found by dividing total fixed cost by the quantity of output. Average fixed cost is one of three related cost averages. The other two are average variable cost and avarage total cost. Average fixed cost decreases with larger quantities of output. Because fixed cost is FIXED and does not change with the quantity of output, a given cost is spread more thinly per unit as quantity increases. A thousand dollars of fixed cost averages out to $10 per unit if only 100 units are produced. But if 10,000 units are produced, then the average shrinks to a mere 10 cents per unit.
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Lesson 19: Monopolistic Competition | Unit 3: Output
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Page: 11 of 22
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- A monopolistic competitive firm is motivated by profit maximization.
- Profit maximization is the presumption that firms make decisions and undertake production to achieve the highest possible level of economic profit, which is the difference between total revenue and total opportunity cost (including a normal profit).
- With these numbers in place, the firm's profit-maximizing task is relatively straightforward -- to pick the production quantity associated with the highest amount of profit.
- Three ways:
- The Total Approach
- Profit
- The Marginal Approach
- In all likelihood the firm will go ahead and produce the sixth unit. However, it will not produce the eighth unit.
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PRIVATE PROPERTY An economic institution in which goods, resources, commodities, or other assets (property) are owned and controlled by households and businesses (the private sector) rather than government (the public sector). Private property is a key institution, along with individual freedom and competitive markets, that helps to form the structure of capitalism.
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PURPLE SMARPHIN
[What's This?]
Today, you are likely to spend a great deal of time touring the new suburban shopping complex seeking to buy either a New York Yankees baseball cap or a solid oak entertainment center. Be on the lookout for telephone calls from long-lost relatives.
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The 22.6% decline in stock prices on October 19, 1987 was larger than the infamous 12.8% decline on October 29, 1929.
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"There is at least one point in the history of any company when you have to change dramatically to rise to the next level of performance. Miss that moment, and you start to decline. " -- Andy Grove, Intel Corp. chairman
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GLS
Generalized Least Squares
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