Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
38 Cards in this Set
- Front
- Back
When workers are more productive what happens to costs?
|
When workers are more productive costs go down. If they are lazy then costs increase.
|
|
Costs short term what are the 2 inputs?
|
Labor (variable) Capital (fixed)
|
|
Capitlal (fixed)
|
Total fixed Costs (TFC) No matter if we're busy or not we have the same cost. Fixed costs do not vary with the level of output. Even if the level of output is zero, fixed costs must be paid.
|
|
Labor costs
|
Total variable costs (TVC) Costs which vary with the level of output. IF you don't produce anyuthing the variable cost is zero. If total output costs 0 then TVC is 0
|
|
Total Cost Equation
|
TVC + TFC
|
|
Average Total Cost Equation
|
ATC=TC / Q
|
|
Average Variable Cost Equation
|
AVC= TVC / Q
|
|
Average Fixed Cost Equation
|
AFC = TFC / Q
|
|
What does the graph look like for ATC and AVC?
|
They are curved lines ATC is always higher than AVC and they eventually get closer and closer together.
|
|
Marginal Cost-
|
The increase in total cost associated with production of an additional unit of output.
|
|
Marginal Cost Equation
|
MC = change in TC / change in Q
|
|
What happens to marginal if average is rising?
|
If average is rising marginal is pulled up as well. It's like with your GPA if you average goes up one semester it pulls your entire GPA up as well the marginal.
|
|
Marginal Cost Equation
|
MC = change in TC / change in Q
|
|
Short run contingency
|
Short run at least one input is fixed so Marginal product goes down. This is the law of diminishing returns because they get in each other's way.
|
|
What happens to marginal if average is rising?
|
If average is rising marginal is pulled up as well. It's like with your GPA if you average goes up one semester it pulls your entire GPA up as well the marginal.
|
|
Law of diminishing marginal returns
|
At least one input is fixed so MP goes down because they get in each other's way.
|
|
Marginal Cost Equation
|
MC = change in TC / change in Q
|
|
Average Total Cost Equation
|
ATC=TC / Q
|
|
Where is total product maximized?
|
TP is maxed when MP=0 because it's going up as long as it's positive.
|
|
Short run contingency
|
Short run at least one input is fixed so Marginal product goes down. This is the law of diminishing returns because they get in each other's way.
|
|
Law of diminishing marginal returns
|
At least one input is fixed so MP goes down because they get in each other's way.
|
|
Where is total product maximized?
|
TP is maxed when MP=0 because it's going up as long as it's positive.
|
|
Average Variable Cost Equation
|
AVC= TVC / Q
|
|
Average Fixed Cost Equation
|
AFC = TFC / Q
|
|
What does the graph look like for ATC and AVC?
|
They are curved lines ATC is always higher than AVC and they eventually get closer and closer together.
|
|
Marginal Cost-
|
The increase in total cost associated with production of an additional unit of output.
|
|
Utility
|
CAnnot compare across people but we can rank it by person
|
|
TU is maximized when?
|
MU=0
|
|
Consumer equillibrium
|
Where total utility is maxed and all money is spent
|
|
Law of Diminishing Marginal Utility
|
As you consume more and more you get less and less utility this is what gives us the downward slope of the demand curve.
|
|
Paradox of value
|
Diamond so expensive not necessary. TV doesn't help us determine price. It's MU that determines price.
|
|
Costs in the long run (planning)
|
All inputs are variable in the long run so all costs are variable.
|
|
Why do costs start to go up into a U shape in the long run?
|
It's not dimonishing returns like in the short run because it's no fixed capital.
|
|
Economy of scale
|
Bigger is better. You can economize your average costs.
|
|
Economies of scale
|
Long run Average costs fall as output expands. example if output doubles, your total cost less then doubles.
|
|
Diseconomies of scale
|
As output expands, long run average costs increaase. Example if you double output total costs more than double.
|
|
Constant returns to scale
|
Average cost stays the same as output expands.
|
|
Sunk costs
|
A cost that has already been incurred or you are contractually obligated to pay and cannot be recovered. Example: Once you pay your tuition and pass the drop date you have paid it and you can't get it back whether you attend class or not.
|