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23 Cards in this Set
- Front
- Back
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Technology
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the body of knowledge and techniques that can be used to combine economic reources to produce goods and services
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Short run
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refers to a period during which a firm has at least one resource that is fixed in quantity ex:plant capacity
Labor (L) is variable Capital (K) is fixed: resource endowment |
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Long run
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refers to a period during which a firm is free to vary all of its resources, including plant size
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Total Product
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TP = Q
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Marginal Product
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MPl = TP/L
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Average Product
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APl = TP/L
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Law of diminishing returns
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states that with a given technology and a fixed resource , the marginal product of a variable input declines as more of it is employed
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Total Variable Cost equation
Total Fixed cost equation Total Cost equation |
TVC=wL
TFC = PkK(constant) TC = TVC + TFC = wL + PkK(constant) |
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Change in the wage rate
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AVC, ATC, and MC Shift in the of the change
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Change in TFC (PkK)
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ATC shifts in direction of change
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Technological advance
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AVC, ATC, and MC shift downward
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Long Run
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all inputs are variable, including capital
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Constant returns to scale (CRS)
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technology exists when an equal change in all resources leads to a proportional change in output
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Increasing returns to scale (IRS)
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technology (ecnomies of scale) exists when an equal change in all resources leads to a morre-than-proportinal change in output
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decreasing returns to scale (DRS)
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technology (diseconomies of scale) exists when an equal change in all resources leads to a less-than proportional change in output
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Average Variable Cost:
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AVC = TVC/Q (labor cost per unit)
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Average Fixed Cost:
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AFC = TFC/Q (capital cost per unit)
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Average Total Cost:
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ATC = TC/Q = AVC + AFC (cost per unit)
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Marginal Cost:
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MC = TC/Q = TVC/Q
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Minimum efficient scale (MES)
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lowest output level at which LRATC is minimized
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Economic Profit:
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profit symbol = TR-TC
explicit costs: monetary payments made fro resources implicit costs: opportunity costs of using self-owned resources |
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Accounting Profit
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TR-Explicit Costs
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Total Revenue
Average Revenue Marginal Revenue |
TR=PQ
AR=TR/Q MR=triTR/triQ |
