Econ Exam 2 Chapter 8

Total revenue minus economic cost

the opportunity cost of the inputs used in the production process;equal to explicit cost plus implicit cost. To compute this, we must determine what the firm sacrifices to use inputs in the production process. economic cost is opportunity cost.

A monetary payment. This is a firms actual monetary payments for inputs. -For example: a firm spends a total of 10k per month on labor, capital, and materials, its explicit cost is $10,000.

an opportunity cost that does not involve monetary payment -the opportunity cost of inputs that doesn't require payment -two examples of inputs who's costs are implicit rather than explicit are: ~an opportunity cost of the entrepreneurs time (if he can earn 5k per month at another job his opportunity cost of the time spend running the firm is 5k per month.) AND ~opportunity cost of the entrepreneurs funs (funds to set up and run businesses)

The explicit costs of production

Total revenue minus accounting cost

The change in output from one additional unit of labor

As one input increases while the other inputs are held fixed, output increases at a decreasing rate

a curve showing the relationship between the quantity of labor and the quantity of output proceeded -ceteris paribus

cost that does not vary with the quantity produced

cost that varies with the quantity produced

the total cost of production when at least one input is fixed; equal to fixed cost plus variable cost.

fixed cost divided by the quantity produced

variable cost divided by the quantity produced

Short run total cost divided by the quantity produced; equal to AFC plus AVC.

The change in short run total cost resulting from one unit increases in output

the total cost of production when a firm is perfectly flexible in choosing its inputs

the long run cost divided by the quantity produced

a situation in which the long run total cost increases proportionately with output, so average cost is constant

the change in long run cost resulting from a one unit increase in output

an input that cannot be scaled down to produce a smaller quantity of output

a situation in which the long run average cost of production decreases as output increases

the output at which scale economics are exhausted

the situation in which the long run average cost of production increases as output increases

when you increase units of a variable input (holding units of fixed input constant), the point where output (see total produce curve) increases but at a decreasing rate (Fig. 8.1, from the third worker and thereafter).

Average fixed cost (AFC) equals total costs (TC) divided by the quantity produced (Q); and average variable cost (AVC) equals total costs (TC) divided by Q; Fig. 8.3. Thus, average total cost (ATC), which is TC/Q, equals AVC plus AFC.

marginal cost intersects ATC curve at its minimum (Fig. 8.4).

but shape of long-run average cost curve (LAC) depends on whether there are economies or diseconomies of scale (know why; Figs. 8.5 and 8.6). The short run is shaped because of diminishing returns and the resulting decrease in labor productivity and increase in marginal costs. if a firm increases its output while at least one input is held fixed, diminishing returns eventually occur, pulling up the average cost of production. the difference between long run and short run is a firms flexibility in choosing inputs. in long run firm can increase all of inputs, scaling up its operation by building a larger production facility and as a result not suffer.

25k 150k 10k-10% interest rate she's loosing 185k loss D

A. Some;None none were fixed because they were flexible and could adapt with long run.

B-increase in number of firms in the market within one firm something changing ACD

B marginal revenue staying the same for every new input you're getting a decreasing rate of increase on return. GM buys more steel for its auto plants in Michigan. twice as much steel but not making twice as much cars so dividing totals by what you're making by what you're spending on production the number is going up because you have this leftover steel that keeps the marginal cost increasing. marginal returns increase at a decreasing rate ***

B

B forth worker take marginal numbers change in output divided by change in input 40/1 30/1

C 4-5th worker 25 units

C see that played out in table above initially increase because adding more workers makes for more wait time on using the machines (example) getting more machines would make it a long run consideration at that point

C "the change"=marginal

A total divided by quant

D

D

B all brought down by same factor Avg total cost minus average fixed cost not add because you can't have more cost than the total cost avg total cost = variables + fixed cost

multiply 14 by 2 (two units) 28 is the total cost of producing those two units is 28 Starting out with $10 fixed + 10 marginal first=20 total average total cost of two is 14--producing 2 is=$28 D because thats the marginal cost from the first to second output (do math) *******************GO over

look at wrksht.

as we make more the average cost goes down diseconomies of scale is as we make more the average COST(prices=consumer) goes up PQ#25