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30 Cards in this Set
- Front
- Back
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Marginal Rule of Substitution |
the ratio of the marginal utility of one good to the marginal utility of another MRS = Mux / MUy |
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Properties of Most Indifference Curves |
Ic's are downward sloping, IC's farther from the origin represent a greater level of TU, IC's never cross, IC's are bowed inward |
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Calculating Slope of IC's |
slope = change of quantity * y / change of quantity *x |
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Principle of Diminishing MRS |
the more of good x a person consumes in proportion to good y, the less y the consumer is willing to substitute for x; MRS decreases as Qx increases |
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Relative Price |
The ratio of the price of one good to the price of the other RP = Px / Py |
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Relative Price Rule |
at the optimal consumption bundle, MRS = RP |
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Perfect Substitutes |
goods for which the marginal rate of substitution is constant, no matter how much of each is consumed |
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Perfect Complements |
goods that a consumer will consume in the same ratio regardless of their relative price |
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Profit |
total revenue - total cost |
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Total Revenue |
price * quantity |
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Accounting Profit |
total revenue - explicit cost |
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Economic Cost |
total revenue - economic cost |
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Normal Profit |
the firm is doing just as well as it could in another industry |
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Short Run |
an amount of time insufficient to allow plant capacity to vary |
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Plant Capacity |
the size of the building and mount of capital equipment |
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Long Run |
all costs are variable; entry and exit are possible |
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Fixed Costs |
cannot be varied in the SR do not change as output changes still exist when output falls to zero usually associated with capital |
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Variable Costs |
costs that change as output changes; go to zero during shutdown |
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Total Cost |
Total Fixed Costs + Total Variable Costs |
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Average Fixed Cost |
Total Fixed Cost / Quantity |
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Average Variable Cost |
Total Variable Cost / Quantity |
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Average Total Cost |
Total Cost / Quantity or Avg Fixed Costs + Avg Variable Cost |
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Marginal Cost |
the additional cost associated with a 1 unit increase in quantity MC = change in total cost / change in quantity |
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Law of Diminishing Returns |
as successive units of a variable resource are added to a fixed resource, the marginal product of the variable resource eventually decreases explains why the short run cost curves eventually increase as a q increases |
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Economies of Scale/Increasing Returns to Scale |
as q rises LRATC falls |
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Economies of Scale/Decreasing Returns to Scale |
as q rises, LRATC rises |
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input prices |
input prices and cost curves move together |
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Regulation/Taxes |
taxes and costs move together |
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Technology |
as this improves, costs fall |
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MPL |
change in quantity / change in labor |
