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Micro: Chapter 9
Test 2
| Term | Definition |
|---|---|
| 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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