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Ag Econ

Ch 7/8

QuestionAnswer
Short-run market supply curve the summation of the supply curve of the individual firms
Economic Profit In competitive, profits are zero in the long run
Implications of perfectly competitive markets Firms will earn zero economic profit in the LR. Consumers consider only price when choosing which firm to buy from. Any firm that rises price above market will lose all sales. Firms can freely enter and exit industries.`
Marginal Revenue Change in revenue resulting from a one-unit increase in output
Short run profit for a price taking firm, if p>SATC, firm is earning profit.
Shutdown Condition If p>AVC, then a portion of fixed costs are covered. If p<AVC, firm should shutdown.
Long Run Competitive Equilibrium All firms are maximizing profit. No firm incentive for enter and exiting. QS = QD
Marginal Cost (MC) Increase in cost resulting from the production of one extra unit of output.
Diseconomies of Scale long run average cost is rising
Economies of Scale Exist when long run average cost is declining
Difference between MP and MC MP: extra output produced by one more unit of an input. MC: is the cost of that extra unit of output
Learning Curve shows the extent to which hours of labor needed/unit of output fall as the cumulative output increases
Difference between q and TVC q: production function. Output on y axis and labor on x axis. Upward arch. TVC: total variable cost. $ on y axis, output on x axis. U curve.
Technological Change 1)production function 2)Isoquant 3)Product Transformation Curve 4)Total Cost Curve 5) Average Cost Curve 6)Marginal Cost Curve
Production Function upward shift
Isoquant inward shift; output held constant
Product Transformation Curve upward shift
Total Cost Curve rightward shift
Average cost curve downward shift
Marginal cost curve downward shift
difference between AP and AVC AP: output divided by units of capital (workers) AVC: variable cost divided by level of output
Expansion Path Shows the least cost input bundles for each level of output when all inputs can varied
Average Cost (AC) Firm's total costs divided by level of output (aka Average Total Cost)
Cost Minimizing Input Choices Costs are minimized when the marginal product of the last dollar spent on labor is equal to the marginal product of the last dollar spend on capital
Average Variable Cost (AVC) Variable cost divided by the level of output
Average Fixed Cost (AFC) fixed cost divided by level of output
Short run supply curve represented by the portion of the short run marginal cost curve that lies above minimum AVC
Isoquant combines all factor combinations which give the same output (capital on y-axis, labor on x-axis, first half of U graph)
Created by: 1185570108