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Micro Chapter 9
| Term | Definition |
|---|---|
| Economic cost | The payment that must be made to obtain and retain the services of a resource. |
| Explicit costs | Monetary outlay (expenses) |
| Implicit costs | -Opportunity cost of using self-owned resources. -Includes a normal profit. |
| Accounting Profit (AccP)= | Revenue - Explicit Costs (R - EC) |
| Economic Profit (EP)= | Accounting Profit - Implicit Costs (AP - IC) Summary: EP = (Rev - ExpC) - ImpC |
| Short run | -Some variable inputs. -Fixed plant certain inputs, like capital, cannot be quickly or easily changed in the short run period |
| Long run | -All inputs are variable. -Firms can adjust plant size as well as enter and exit industry. |
| Marginal Product (MP) | △Total Product/△Labor Input (△TP/△LInp) |
| Average Product (AP) | Total Product/Units of Labor (TP/ULab) |
| Law of Diminishing Returns | after some optimal level of capacity is reached, adding an additional factor of production will result in smaller increases in output |
| Short-Run Production Costs | -Fixed costs (TFC): Costs that do not vary with output. -Variable costs (TVC): Costs that do vary with output. Total cost (TC): TC = TFC + TVC |
| Average Fixed Cost (AFC)= | TFC/Q Q = quantity |
| Average Variable Cost (AVC)= | TVC/Q |
| Average Total Cost (ATC)= | TC/Q |
| Marginal Cost (MC)= | △TC/△Q |
| Long-Run Production Costs | -All costs are variable (TVC); costs vary with output -focuses more on ATC |
| Economies of scale: | certain businesses can have smaller plants than others depending on price & size needed. Constant returns to scale -Labor specialization -Managerial specialization -Efficient capital -Other factors |
| Diseconomies of scale: | too many workers can lead to: -Control and coordination problems -Communication problems -Worker alienation -Shirking |
| Minimum efficient scale (MES) | Lowest level of output at which long-run average costs are minimized. Can determine the structure of the industry. |
| Natural monopoly: | Long-run costs are minimized when only one firm produces the product |
Created by:
Phillies55
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