II.BC Exam Flashcards
you will continue to consume a product until….
marginal benefit = marginal cost
what is the utility maximizing equation?
MU (marginal utility)
MUx/Px = MUy/Py
what do economic costs consist of?
explicit and implicit costs
- explicit; monetary payments
- implicit; value of next best use, opportunity cost
what is the difference between accounting profit and economic profit?
- accounting profit-total revenue minus explicit cost
- economic- total revenue minus economic cost
what is normal profit
equal to implicit cost
-fair return
how is the short run categorized as?
- fixed plant capacity
- variable intensity of plant use
- variable output
how is the long run categorized?
- variable plant capacity
- firms enter and exit
how do you find average product?
total product/ units of labor
what is the law of diminishing returns
the one point where the next additional worker is added and the profit or benefit is less than what you pay for say an employee or machine
when MP equals zero what does this mean for TP?
total product is at its maximum
when MP is negative what does this mean for TP
Total product is decreasing
when MP starts to decrease what does this do to TP?
Total product is still increasing but it is slowing down and will eventually reach maximum where MP is zero
fixed costs
- costs that do not vary with output
- rent, electricity,etc
variable costs
- costs that vary with output
- materials, most labor
how do you find Average fixed cost?
AFC=Total fixed cost/quantity
how do you find average variable cost?
AVC= total variable cost/ quantity
how do you find Average total cost?
ATC= Total cost/quantity= Total fixed cost/Q + Total variable cost/Q= AFC + AVC
how do you calculate marginal cost?
change in TC/Change in Q
long run ATC curve is made up of what?
a bunch of short run ATC curves
economies of scale
- labor specialization
- managerial specialization
- efficient capitol
- you doubled your workers, so your output is more than doubled
what is the cost minimizing equation?
MP(labor)/Price(labor) = MP(capitol)/Price(capitol)
*spending the last dollar to get maximum output
constant returns to scale?
you doubled your workers, so your output is exactly doubled
diseconomies of scale
you doubled your workers, so your output is less than doubled
