Term
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Definition
| A firm ecounters 2 different inputs - variable inputs and fixed inputs. |
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Term
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Definition
| VI would change as output changes |
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Term
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Definition
| FI would not change even as output of quantity (Q) changes |
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Term
| Total Cost in the Short-Run |
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Definition
TC = TVC + TFC
TC = AC * Q |
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Term
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Definition
ATC = AC = TC/Q
ATC = AVC + AFC |
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Term
Average Variable Cost
(AVC) |
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Definition
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Term
Total Variable Cost
(TVC) |
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Definition
TVC = AVC * Q
TVC = TC - TFC |
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Term
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Definition
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Term
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Definition
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Term
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Definition
The extra cost incurred by producing one more unit
(additional cost you pay by selling one more unit)
MC = (change in TC) / (change in Q)
MC = (change in TVC) / (change in Q)
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Term
| Law of Diminishing Return |
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Definition
Exists in the short-run (ONLY)
To add an equal amount of variable input (labor) into a fixed input (land), marginal product (MP) will be at some point diminishing.
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Term
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Definition
MP = (change in TP) / (change in L)
TP: total product
L: labor |
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Term
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Definition
Quantity inc, ATC dec
LRAC and LRMC are both declining
LRMC below LRAC
LRTC increasing at a decreasing rate
due to specialization and dimensional factor |
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Term
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Definition
Quantity inc, ATC fixed (no change)
maintaining at lowest possible level
LRAC and LRMC have the same values
LRTC increases at a constant rate |
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Term
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Definition
Quantity inc, ATC inc
firm is getting too big
LRAC and LRMC are increasing
LRMC above LRAC
LRTC increasing at an increasing rate
due to managerial layers increase average costs faster than they increase output |
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Term
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Definition
Total Revenue - Total Explicit Cost
TEC: Total Explicit Cost (TVC, TFC) |
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Term
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Definition
What a firm had actually paid
ex. raw material, rent/lease
out of pocket expenses |
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Term
Microeconomy
4 major types of
competition |
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Definition
Perfect Competition
Monopolistic Competition
Oligopoly
Monopoly |
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Term
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Definition
- Many buyers/sellers
- No one buyer/seller is big enough to affect the market price
- each seller produces homogenous good/product
- each seller is a price taker
- very easy for other firms to enter/exit
- in the long run, each existing firm earns a normal profit. EP=0 (saturated market)
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Term
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Definition
MR = (change in TR) / (change in Q)
additional revenue earned by selling one more unit
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Term
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Definition
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Term
| Profit Maximization Rules |
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Definition
- MR > MC -- keep increasing output
Q inc, EP inc
- MR < MC -- decrease output
Q dec, EP inc
- MR = MC -- contain output
Q fixed, EP is maximized
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Term
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Definition
TR - TEC - TIC
AP - TIC
(foregone salary, rent, and interest) |
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