Microeconomics Chapter 11 – Flashcards
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On what two factors does the cost-minimizing combination of inputs depend?
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Technology & input prices
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How can marginal cost be recognizing mathematically?
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MC = change in TC / change in Q TC - Total Cost Q - Output
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What is the difference between the short run & the long run?
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In the short run: at least one input is fixed. In the long run: the firm is able to vary all its inputs, adopt new technology, & change the size of its physical plant.
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What is technology?
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The process a firm uses to turn inputs into outputs of goods & services.
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Suppose a company mows yards with workers & lawn-mowing equipment. What will the firm's isocost line show?
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All combinations of workers & equipment that have the same total cost.
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Accounting Profit
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Total Revenue - Total Explicit Costs
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Economic Profit
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Total Revenue - Total Costs (Explicit & Implicit)
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What is higher? Accounting Profit or Economic Profit? And why?
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Accounting Profit because it ignores implicit costs.
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Total Cost
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The cost of all the inputs a firm uses in production
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What determines pricing decisions?
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The relationship between the quantity a firm can produce and its costs.
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Marginal Cost (MC)
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The increase in total cost from producing one more unit.
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MC Equation
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Change in total cost / change in quantity
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Total Cost Equation
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TFC + TVC
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Fixed Costs (FC)
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Costs that remain constant
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Variable Costs (VC)
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Costs that change as a firm's output changes
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Average Total Cost (ATC) Equation
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Total Cost / Quantity of Output Produced
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Average Fixed Cost (AFC) Equation
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fixed cost / Quantity of output produced
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Average Variable Cost (AVC) Equation
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Variable cost / quantity of output produced
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Implicit Cost
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Non monetary opportunity cost
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Explicit Cost
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cost that involves spending money
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Technological Change
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A change in the ability of a firm to produce a given level of output with a given quantity of inputs.
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Short Run
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The period of time during which at least one of a firm's inputs is fixed
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Long Run
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the period of time in which a firm can vary all its inputs, adopt new technology, and increase or decease the size of its physical plant. No fixed costs; all variable costs.
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Production Function
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The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs.
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Marginal Product of Labor
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The additional output a firm produces as a result of hiring one more worker
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Law of Diminishing Returns
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The principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline.
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Average Product of Labor Equation
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Total output produced by a firm / quantity of workers
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Long Run Average Cost Curve
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It shows the lowest cost at which a firm is to produce a given quantity of output in the long run, when no inputs are fixed.
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Economies of Scale
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The situation when a firm's long-run average costs fall as it increases the quantity of output it produces.
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Constant Returns to Scale
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The situation in which a firm's long-run average costs remain unchanged as it increases output
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Minimum Efficient Scale
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The level of output at which all economies of scale are exhausted.
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Diseconomies of Scale
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The situation in which a firm's long-run average costs rise as the firm increases output.
