Microeconomics chapters 2-9

to maximize profit and value

Revenue - Input Costs

Revenue - Input Costs - Opportunity Costs

• 1. Large number of small producers
• 2. Homogenous product
• 3. No limits on entry/exit
• 4. Perfect and symmetrical knowledge

A technical relationship between physical quanity of output from various levels of a variable input with a bundle of fixed inputs per unit of time. 

Every production function has a point of diminishing marginal product (or returns)

• 1. Increasing Marginal Returns: when marginal returns increase at an increasing rate.
• 2. Decreasing Marginal Returns: when marginal returns increase at an increasing rate. 
• 3. Negative Marginal Returns: when marginal returns are decreasing

a process where buyers and sellers interact

the quanities of good that consumers are willing to purchase at alternative prices

Amount purchased at a price, (a quanity NOT a relationship)

• 1. prices of substitute goods
• 2. prices of complimentary goods
• 3. consumer income
• 4. tastes & preferences
• 5. expectations 
• 6. demographics

• 1. number of firms
• 2. expectations
• 3. technology
• 4. taxes & subsidies
• 5. prices of inputs

willingness to sell

amount produced at a price (quanity NOT a relationship)

price at which quanity supplied is equal to quanity demanded

price > equilibrium

price < equilibrium

particular social science that deals with allocation of scarce resources among an unlimited number of competing alternative uses

socal science that deals with allocation of scarce resources among those competing alternative uses found in production, processing, distribution, and consumption of food and fiber. 

• 1. what to produce
• 2. how to produce
• 3. how much to produce
• 4. where to produce
• 5. for whom to produce

allocative system in which economic choices are based on prices

allocative system in which economic choices are made by a central administrative unit

firms engaged in farm service marketing, agricultural production, food processing, food distribution, and consumption

expected pattern of economic behavior

"let one economic variable (cause) change and see how other variable (effect) changes, assuming else remains unchanged," 

(Change Total Product) / (Change Variable Input)

factors affecting profitability of the firm beyond the control of the manager. EX - input & output costs 

factors affecting profitability of the firm that manager can control. EX - variable inputs, quanities

Cost and Revenue

(change total cost) / (change quanity)

Divide by quanity

horizontal summation of individual firm supply curves

collection of firms producing the same or similar products

(amount of marginal product) x (constant price of product)

Additonal cost associated with unit increase of variable input; equal to price of variable input

quanities of the variable input used by the firm at alternative input prices; equal to VMP curve in rational range of production

firm in an industry with the highest average costs and most likely firm to leave industry if prices fall

• 1. price of product
• 2. technology
• 3. supply shift of other factors

satisfaction created by the consumption of goods and services

• Substitution: EX - price of beef goes up, relative price of chicken goes down looks more appealing
• Real Income: EX- price of beef goes up, purchasing power of consumer decreases and consumer is forced to buy less of everything including beef

tastes & preferences

maximize utility given limited resources

• 1. opportunity cost of purchasing = price of good
• 2. rational behavior (more > less)
• 3. consumer can express preferences
• 4. budget constraint
• 5. consumption includes utility from purchasing
• 6. consumer seeks to maximize marginal utility

satisfaction obtained from consuming different quanities of two different goods

additional utility gained from one additional unit of consumption

aggregation of individual consumer demands

measure of responsivenessof quanity demanded to changes in price

E = (% change in quanity demanded) / (% change in price)

• measures changes in quanity demanded caused by a change in the price of substitutes and complements
• E_C = (% change in quanity demanded of good A) / (% change in price of good B)