Production, Competitive Markets And Monopoly Flashcards
Accounting costs
Everything the firm pays for
Economic costs
Costs including opportunity costs
What is difference between SRAS/LRAS and what is there to remember about SRAS
SRAS-at least one F.O.P is fixed
LRAS-all F.O.P are variable
SRAS-only labour is variable, capital cannot
What is the production function
Q=f(K,L)
K=capital L=labour
Marginal product
The additional output produced when adding an additional unit of F.O.P e.g one more worker
Marginal product of labour formula
Change in output (Q) / Change in labour (L)
Diminishing marginal product
As we add more F.O.P marginal product stays positive but decreases
What is an isoquant
An isoquant collects different combinations of capital (k) and labour that results in the same quantity of output.
Marginal rate of technical substitution
The rate at which we replace one F.O.P with the other
Isocots assumption
Isocots assume firms pay a fixed price per unit of each input. Isocots are basically a budget constraint for factors of production.
What are the shortenings for capital and labour for Isocots
Price of capital (Pk) x quantity of capital (K) (PkK) + Price of labour (Pl) x quantity of labour (L) (PlL)=TC
Where is output maximised at its minimum cost?
Where the isoquant and isocots meet tangental
MRTS formula
MPL/MPK
