costs Flashcards
define opp cost
the value of the best alternative use of the resource
what are sunk costs
start up costs that cant be recovered
equation for TC in the SR
TC = FC + VC
define MC
extra cost of producing one more unit of output
what does VC equate to
VC = wL (wage rate x labour)
what is the only way to increase output in the SR
increase labour
what can mc and avc be equated to
MC = w/MPL
AVC = w/APL
what affect does a specific tax per unit affect
tax collected is xq and it only affects VC not FC
how does specific tax affect mc and ac
will shift it upwards by the amount of the tax
what tax affects FC
Franchise or lump sum tax
will the firm produce more or less if imposed with a lump sum tax
more as it will lower ac with ever unit it produces
what changes regarding the cost function in the LR
all costs are variable in the LR so TC = VC
what is the isocost line
all combos of costs that total the same amount
what is the isocost line function
C = wL + rK
what is the slope of the isocost line
MRTS = -w/r
what is the lowest isocost rule
the firm will use the input combo on the lowest isocost line that touches the isoquant
what is the tangency rule
the lowest isocost line is tangent to the isoquant at the tangent point -w/r = MRTS
what is the last dollar rule
the firm minimises cost when the last dollar spent on labour adds as much output as the last dollar spent on capital
what is the equation for the last dollar rule
MPL/w = MPK/r
how does the capital price rising affect the isocost line
firms would employ more labour due to cheaper costs
cost of a firm producing multiple goods
C(q1,0)+C(0,q2) - C(q1,q2)///c(q1,q2)
how do we tell if it is cheaper to produce goods together or seperately
cheaper: SC>0
expensive: SC<0
