# Shared Flashcard Set

## Details

Exam 2 - Econ
Production Costs, SR, LR
24
Economics
07/11/2011

Term
 Short Run
Definition
 A firm ecounters 2 different inputs - variable inputs and fixed inputs.
Term
 Variable Inputs (VI)
Definition
 VI would change as output changes
Term
 Fixed Inputs (FI)
Definition
 FI would not change even as output of quantity (Q) changes
Term
 Total Cost in the Short-Run
Definition
 TC = TVC + TFC   TC = AC * Q
Term
 Average Total Cost (ATC)
Definition
 ATC = AC = TC/Q ATC = AVC + AFC
Term
 Average Variable Cost (AVC)
Definition
 AVC = TVC/Q
Term
 Total Variable Cost (TVC)
Definition
 TVC = AVC * Q TVC = TC - TFC
Term
 Average Fixed Cost (AFC)
Definition
 AFC = TFC/Q
Term
 Total Fixed Cost
Definition
 TFC = TC - TVC
Term
 Marginal Cost (MC)
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)
Term
 Law of Diminishing Return
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.
Term
 Marginal Product (MP)
Definition
 MP = (change in TP) / (change in L) TP: total product L: labor
Term
 Economies of Scale
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
Term
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
Term
 Diseconomies of Scale
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
Term
 Accounting Profit
Definition
 Total Revenue - Total Explicit Cost TEC: Total Explicit Cost (TVC, TFC)
Term
 Total Explicit Costs
Definition
 What a firm had actually paid ex. raw material, rent/lease out of pocket expenses
Term
 Microeconomy 4 major types of competition
Definition
 Perfect Competition Monopolistic Competition Oligopoly Monopoly
Term
 Perfect Competition
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)
Term
 Marginal Revenue
Definition
 MR = (change in TR) / (change in Q) additional revenue earned by selling one more unit
Term
 Marginal Profit
Definition
 MProfit = MR - MC
Term
 Profit Maximization Rules
Definition
 MR > MC -- keep increasing outputQ inc, EP inc  MR < MC -- decrease output Q dec, EP inc MR = MC -- contain output Q fixed, EP is maximized
Term
 Economic Profit
Definition
 TR - TEC - TIC AP - TIC (foregone salary, rent, and interest)
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