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14 Cards in this Set

  • Front
  • Back
Industrial Organization
The study of how firms' decisions about prices and quantities depend on the market conditions they face.
Explicit and Implicit Costs
Explicit costs- opportunity costs of production that require the payment of money (e.g. paying wages to workers)

Implicit costs- opportunity costs of production that do not require money payment (e.g. the opportunity cost of the owner's time)

Economists account for both while accountants only account for explicit costs
Production Function
Relationship between the input to produce a product and the output of the product.
Marginal Product
The increase in output that arises from an additional unit of input. It is the slope of the production function.

Marginal Product of Labor = Change in output / Change in labor
Diminishing Marginal Product
The property whereby the marginal product of an input declines as the quantity of the input increases.
Ex) Too many workers means they have to share equipment which lowers the production rate
Total-cost Curve
Shows the relationship between the quantity produced (horizontal axis) and the total costs (vertical axis)
Fixed and Variable Costs
Fixed costs- do not vary with the amount of output produced (rent, permanent jobs, etc.)

Variable costs- changes as the company changes the amount of output (supplies, wages, etc)

Total cost = fixed costs + variable costs
Average Total Cost
= Total cost / Quantity of output

Or AFC + AVC
Average Fixed Cost
= Total fixed cost / Quantity of output
Average Variable Cost
= Total variable cost / Quantity of output
Marginal Cost
The increase in total cost that arises from an extra unit of production. The marginal cost crosses the average total cost at the minimum of the average total cost.

MC = Change in total cost / Change in quantity
Efficient Scale
The amount of output that minimizes ATC
Economies of Scale
Occurs when increasing production allows greater specialization: workers more efficient when focusing on a narrow task. More common when Q is low. ATC falls as Q rises
Diseconomies of Scale
Due to coordination problems in large organizations. (e.g. management becomes stretched, can't control costs). More common when Q is high. ATC rises as Q rises.