Production and Supply Flashcards
Production Function
tells us the max amount of an output for a given amount of input Q=f(L,K)
Constant returns to scale
Doubling of all inputs leads to a doubling of output
Average product
Tells us the output per unit of input
APl = Q (total product) /L (labour)
APK = Q/K (capital)
Marginal product
Change in output when single input changes (other held constant)
MPl = (initialQ/initialL) (labour)
MPl = (initialQ/initialk) (capital)
Marginal Product = Change in Output/ Change in Input
Diminishing Marginal Products
Increase in one input, other inputs held constant, lead to increase in output at a decreasing rate
Demand for Labour
Value of Marginal Product VMP
price of output x the Marginal product of the input
Demand for Capital
The amount the entrepreneurs want to invest
Marginal Cost Curve
The marginal cost (MC) curve is defined as the change in total cost divided by the change in energy output.
supply curve of producers
Average Cost Curve
The average total cost curve is typically U-shaped. Average variable cost (AVC) is calculated by dividing variable cost by the quantity produced.
Competitive Firm (price taker)
Each firm is price taking, ignores its rivals output decisions and doesn’t engage in strategic behaviour
Marginal Revenue
the revenue gained by producing one additional unit of a good or service.
Average Revenue
the revenue that is earned per unit of output.
Profit Maximization Conditions
MR = MC
Breakeven Point
The minimum of the AC curve
Shutdown Point
The minimum, of the AVC curve
Marginal Cost Curve & Supply Curve
Accordingly, the marginal cost curve (MC) is that firm’s supply curve for the output; as price of output rises, the firm is willing to produce and sell a greater quantity. Combining the MC curves for all the firms producing the product is the supply curve for the industry.
Shift in Supply & changes in quantity supplied
A change in quantity supplied is a movement along the supply curve in response to a change in price. A change in supply is a shift of the entire supply curve in response to something besides price.
Lump sum tax
A tax that is the same amount for everyone
Per unit tax
Per unit tax refers to a tax that is applied to each unit of a good or service
Economic profit in equilibrium
quantity supplied = quantity demanded
Maximum for consumers meant they equated their MV to _______
the price of the good
Maximization for firms meant they equated their MC to ________
the price of the good
In equilibrium, MV = _______
MC
Increases in demand lead to movements along the _____ curve, ________ EQ price, & ________ EQ quantity
supply, increases, increases
Increases in supply leads to movements along the ______ curve, _______ Eq quantity & ______ Eq price
demand, decreases, increases
