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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.