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37 Cards in this Set
- Front
- Back
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Law of diminishing marginal utility
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-added satisfaction declines as a consumer acquires additional units of a product
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utility
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-satisfaction
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total utility
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-as the amount of product acquires increases, so does total utility
-at a maximum when marginal utility is at 0 |
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marginal utility
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-extra utility added as a result of changing consumption by one unit
-(change in total utility)/(change in amount of x)=marginal utility |
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Income Equation
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Income=((price of x)*(quantity of x))+((price of y)*(quantity of y))
I=((Px)*(x))+((Py)*(y)) (Px)*(x)=expenditure on x (Py)*(y)=expenditure on y |
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utility maximizing rule
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-allocate money income so that the last dollar spent on each product yeilds the same marginal utility
-you spend your last dollar on each product because they have equal worth to you -((MUx)/(Px))=((MUy)/(Py)) |
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economic cost
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-value or worth the resource would have in its best alternative use
-opportunity cost |
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explicit costs
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-revealed and expressed
-monetary payments made to those who supply labor, materials, etc. -costs that you put on the books |
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implicit costs
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-present but not obvious
-opportunity cost of using self-owned, self-employed resources -ex:if you start a business with your own money and you then earn a high profit, part of that profit goes to repay yourself so really your profit is lower. the start-up capital was the implicit cost. |
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normal profit
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-when accounting profit covers both explicit and implicit costs
-breaks even |
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profit
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in economics, it is used to say total revenue minus economic costs
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indifference curve
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-show all the combinations of 2 products that yeild the same satisfaction
-exceptions: pairs, bads |
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accounting profit
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revenue-explicit costs
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short run
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period when a firm is unable to change ALL factors of production
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long run
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period off time when a firm is capable of changing ALL factors of production
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Total Production of Labor
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-TP
-quanitiy of output -at maximum when marginal=0 |
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Average Production of Labor
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-AP
-(total production)/(amount of labor)=AP |
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Marginal Production of Labor
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-MP
-(change in total production)/(change in labor)=MP -slope of total production |
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costs of production
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-fixed costs
-variable costs |
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fixed costs
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-must be paid whether you are producing or not
-ex:rent, insurance, land tax, interest rate |
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variable costs
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-associated with output
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total cost
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total cost=fixed cost + variable cost
TC=FC + VC |
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Average total cost
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-ATC
-((fixed cost)/(output))+((variable cost)/(output)) |
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average fixed cost
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-AFC
-(total fixed cost)/(output)=AFC |
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average variable cost
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-AVC
-(total variable cost)/(output)=AVC |
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marginal cost
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-MC
-(change in total cost)/(change in output)=MC -((change in fixed cost)/(output))+((change in variable cost)/(change in output))=MC fixed cost is clearly fixed so the first part of the equation is always zero |
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fixed costs double. what is effected?
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AFC curve moves upwards
ATC curve moves upwards |
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price of a variable rises. what is effected?
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AVC, ATC, MC curves shift upward
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more efficient technology is discovered. what is effected?
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all curves shift downwards except AFC because it is not effected by changes in resources
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economies of scale
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-explain the downsloping part of thelong-run ATC curve
-as plant size increases, a number of factors will for a time lead to lower average costs of production |
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labor specialization
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-economy of scale
-hiring more people means they can be specialized and learn just one part of prodduction and learn it really well |
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manegerial specialization
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-economy of scale
-managers can focus on what they are specially trained to do (manage personell/sales, etc) and are managing the right amount of people |
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efficient capital
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-economy of scale
-larger firms can afford more efficient technology |
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diseconomies of scale
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having a larger firm may eventually lead to higher average costs
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constant returns to scale
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-wide range off output between when economies of scale end and diseconomies of scale start
-when long-run average cost doesn't really change -ATC is constant in this range |
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minimum efficient scale
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-lowest level of output at which a firm can minimize long-run average costs
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natural monoply
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when only one firm produces the good or service
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