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Chapter 11
Micro Econ
| Term | Definition |
|---|---|
| Production Function | Relationship between quantity of inputs and quantity of output |
| Industrial Organization | Study of how firms' decisions about prices and quantities depend on the market conditions they face |
| Profit | TR-TC |
| TR | PQ |
| Total Revenue | Amount a firm receives for the sale of its output |
| Total Cost | Market value of the inputs a firm uses in production |
| Explicit costs | Input costs that require an outlay of money by the firm |
| Implicit Costs | Input costs that do not require an outlay of money by the firm; ignored by accountants |
| TC | EC+IC |
| Economic Profit | Total costs includes both explicit and implicit costs; Accounting profit-implicit costs |
| Accounting Profit | TR-TEC; usually larger than economic profit |
| Fixed Input | An input whose quantity is fixed for a period of time and cannot be varied |
| Variable input | An input whose quantity the firm can vary at any time |
| Long run | The time period in which all inputs can be varied |
| Short Run | The time period in which at least one input is fixed |
| Capital | fixed input |
| Labor | varied in the short run |
| Marginal Product | The additional quantity of output tat is produced by using one more unit of that input |
| MPL | Delta Q/ Delta L |
| Marginal product of an input declines | as the quantity of the input increases |
| Production function gets flatter | as more inputs are being used |
| Marginal product of labor | The increase in the quantity of output when you increase the quantity of that input by one unit |
| FC+VC | TC |
| Total-cost curve | Relationship between quantity produced and total costs; gets steeper as the amount produced rises |
| Average fixed cost; AFC | FC/Q |
| Average Variable Cost; AVC | VC/Q |
| Average Total Cost; ATC | TC/Q |
| Cost of a typical unit of output | If total cost is divided evenly over all the units produced |
| Marginal Cost; MC | Delta TC / Delta Q |
| MC: Increase in total cost | From producing an additional unit of output |
| Rising marginal cost curve | because of diminishing marginal product |
| AFC | Always declines as output rises |
| AVC | Typically rises as output increase because of diminishing marginal product |
| Bottom of the U-Shape | At quantity that minimizes average total cost |
| Efficient Scale | Quantity of output that minimizes ATC |
| MC < ATC | average total cost is falling |
| MC > ATC | average total cost is rising |
| @ Minimum | Marginal-cost curve crosses the average-total-cost curve |
| Marginal cost eventually rises | with the quantity of output |
| Average-total-cost curve | U-Shaped |
| Long run cost curves | Flatter than short run cost curves |
| Short run cost curves | Lie on or above the long-run cost curves |
| Increasing returns to scale | When long run average total cost declines as output increases; increasing specialization among workers |
| Decreasing returns to scale | When long run average total cost increases as output increases |
| Constant returns to scale | When long run average total cost is constant as output increases; Increasing coordination problems |
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sarahmaechtle
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