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Micro: Chapter 9

Test 2

TermDefinition
explicit costs cots that requires an actual outlay of money (what's on the price tag of the good you buy)
implicit costs dollar value of benefits foregone as a result of choice; a lot like opportunity costs
accounting profit revenue - explicit costs; "normal" way to think of profits
economic profit revenue - (explicit costs + implicit costs); ie up front cost + dollars you're sacrificing
either/or decisions choose between two decisions; only worry about 1st and 2nd choice; when making either/or choice, pick the one that has the greatest economic profit (don't forget implicit cost!)
how many / how much decisions marginal -> push things out a little bit, see if that makes you better off; how does the situation change if I do one more of something?
marginal benefit (MB) [general] benefit you get from one more unit; just the next one, not all those before it; MB = max WTP for the next unit (what you're willing to pay for one more)
marginal cost (MC) [general] what you have to give up for one more unit; just the next one, not all those before it
When do you stop increasing quantity in how many/much decisions? MB of next unit > MC of next unit; assume if MB = MC, go for it
total benefit (TB) how much better off from consuming the quantity I pick?; it's the sum of the MB of every unit you consume
marginal benefit (MB) how much better off if I increase my consumption by one unit? (better off from the next unit; it's the change in TB caused by next unit
average benefit how much better off, on average, does each unit I consume make me?; TB/Q
total cost (TC) How much did I have to pay/give up for the quantity I pick?; sum of the MC of every unit you consume
marginal cost (MC) How much more do I pay to produce/get one more unit?; change in TC cause by next unit
average cost How much, on average, did each unit cost me?; TC/Q
When MB = MC... resources are allocated efficiently; when MB<MC total benefit does down; when MB>MC total benefit could still be improved; MB is usually decreasing in slope and MC is usually increasing in slope; if for next unit MB>MC, keep increasing Q
Created by: nicook
 

 



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