Mikro - Kap 23 Flashcards
If profit is as high as possible and normal economic profits are being earned.
The term normal economic profit means a firm is earning zero profit, and a firm earns zero profit when price equals average total cost. Profit is maximized when marginal cost equals marginal revenue. This means that any other quantity would earn a negative profit
When is profit maximized?
Profit is maximized when the marginal cost of a quantity equals the marginal revenue earned by that quantity.
When does marginal product increase?
A firm experiences increasing marginal product when its marginal costs are decreasing.
What is the Frank-Heggood company experiencing if it increases all of its inputs by 70% but its output increases 50%?
decreasing returns to scale
A producer experiences decreasing returns to scale if it increases its use of inputs and, as a result, output increases less than the increase in inputs.
What is the profit-maximizing choice of quantity?
The profit-maximizing choice of quantity is where marginal revenue equals marginal cost.
When is the economic profit?
total revenue - economic cost
Economic cost = explicit cost + implicit cost
What is the Marginal product of labor
It is the change in input from one additional unit of labor
If you add one more unit to a one man production, the output is gonna increase much. It increases at an increasing rate. If you continue to add more workers without adding other input factors, the marginal product of labor will increase at a decreasing rate. This is because of the principle of diminishing returns.
What is Average fixed cost (AFC)?
Equals the fixed cost divided by the quantity produced:
AFC = FC/Q
What is the Average variable cost (AVC)?
Incorporates the costs that vary with the quantity produced. Average variable cost equals to the variable cost divided by the quantity produced:
AVC = VC/Q
What is the Average total cost?
TC/Q (Total cost divided by quantity)
What does Spreading the fixed cost mean?
For small quantities, a one unit increase in output reduces AFC by a large amount because the fixed cost is ”thick”. For example from one paddle to five paddles the AFC decreases from 100 to 20.
What is the Short-run marginal cost?
MC = dVC / dQ = Change in TC / Change in output
What is The relationship between Marginal cost and Average cost?
Suppose that you start the semester with 9 completed courses and accumulative grade-point average of 3.0. In the first row of Table 23.3, you have 27 grade points (4 for each A, 3 points for each B, and so on). So your GPA is 3.0. Which is 27 points divided by 9 courses. You enroll in a single course this semester— A history course. Your new gpa will depend on your grade in the history course, the marginal grade.
There are three possibilities:
Marginal grade less than the average = Average will fall to 2.8 because it increases to 28 points from 27 divided by 10 courses. Marginal grade of 1.0 is lower than the average grade.
Marginal grade equal to average grade = no changes
Marginal grade greater than the average grade = grows since it’s higher than the old average.
What is Long-run total cost (LTC)?
total cost of production when the firm is perfectly flexible in choosing its inputs, including its production facility.
What is the Long-run average cost (LAC)?
equals long-run cost divided by the quantity produced. Average cost is constant, doesn’t change with quantity.
What is the Long-run marginal cost (LMC)?
Change in long-run cost resulting from producing one more unit of output. LMC is increase in cost when the firm can change its production facility as well as its workforce.
What is Economies of scale: ?
Minimum efficient scale for producing a good = defined as the output at which scale economies are exhausted.
What are Diseconomies of Scale?
Can happen if coordination problems happen, a big company needs many staff to coordinate the company and becomes more expensive in that way.
Increase in input costs = If output increases they may have to pay extra to get more workers.
