Define the following terms and explain their importance to the study of economics
a. marginal cost
b. marginal revenue
c. short-run equilibrium
d. supply curve of the firm
e. economic profit
a. Marginal cost is the cost to the firm of producing and selling an additional unit of the good.
b. Marginal revenue is the amount of extra revenue the firm receives for producing and selling one more unit of a good.
c. Short-run equilibrium occurs in the time period in which some commitments cannot be changed. The number of firms in the industry cannot be changed. The competitive firm will equate P to MC > AVC to choose profit-maximizing (or loss-minimizing) price and output. If price is below the minimum of AVC, the firm will minimize losses by shutting down.
d. The short-run supply curve for the competitive firm is MC > AVC. If price is below the minimum of AVC, the firm will minimize losses by shutting down.
e. Economic profit equals net earnings, in the accountant's sense, minus the opportunity cost of capital and of any other inputs supplied by the firm's owners. It is assumed that firms seek to maximize economic profits. In a competitive industry in the long run, economic profits are zero.
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a. has been trouble-free owing to the stabilizing role of speculators in the currency markets. b. has suffered from so many problems that the volume of trade has declined significantly. c. exposes businesses to unavoidable risks when exchange rates change. d. has been subject to wild runs on currencies that were on the verge of devaluation.