HL - Unit 2 diminishing return, costs and formulas Flashcards
1
Q
Law of diminishing marginal return
A
As extra units of a variable factor are added to a given quantity of fixed factors, the output from each additional unit of the variable factor will diminish
2
Q
Marginal Cost
A
The increase in the total cost of producing an extra unit of output (change in TP/change in quantity)
3
Q
Average cost
A
TC/quantity
4
Q
AVC
A
AC - AFC or TVC/output
5
Q
Total Revenues
A
P x Q
6
Q
Profit
A
TR-TC
7
Q
Assumptions in perfect market
A
Perfect Knowledge
No barriers to enter/exit
Perfect resource mobility
8
Q
Abnormal profit
A
When AR is greater then AC or TR is greater then TC
9
Q
Normal Profit
A
AR=AC or TR=AC
10
Q
Loss
A
AR
11
Q
Short Run
A
Period of time in which one factor of production is fixed, the actual production
