ECON micro 2

  1. Production: short-run: TC=
  2. average cost of production-- ATC=
    • ATC=TC/Q
    • --> TC=ATC•Q
  3. average variable cost: AVC=
  4. total variable cost:TVC= (2 formulas)
    • TVC=AVC•Q
    • TVC=TC-TFC
  5. average fixed cost: AFC=
    • AFC=TFC/Q
    • therefore, TFC=AFC•Q and TFC=TC-TVC
  6. marginal cost: def. and formula, MC=
    • additional cost incurred by producing an additional unit
    • MC=ΔTC/ΔQ
    • also, MC=ΔTVC/ΔQ +0
    • *remember ΔTFC/ΔQ=0
  7. average cost: AC=
  8. law of diminishing marginal rate of return
    to add an equal amount of a variable input (labor) into a fixed input (land), marginal output (marginal product, MP) (extra) will be at some point diminishing
  9. in relation to the AVC curve, where is the ATC curve?
    ATC curve always above AVC curve
  10. explain difference between curves: TFC vs AFC
    • TFC will be a constant horizontal line
    • AFC will be a downward sloping curve; as Quantity ↑ the AFC ↓ and approaches zero
  11. the extra output that can be produced by using one more unit of the input
    marginal product; ex: adding one more worker to labor force
  12. marginal product, MP=
    • MP=ΔTP/ΔLabor
    • MP=ΔQ/ΔL
  13. when MP goes up or down what happens to MC and profit?
    • MP↑ --> MC↓ --> Profit↑
    • MP↓ --> MC↑ --> Profit↓
    • *also, when MPhighest --> MClowest
  14. points that dictate break-even or shutdown?
    • break-even: when profit = Average Total Cost; EP=0
    • shutdown: when profit < Average Variable Cost
Card Set
ECON micro 2
ECON micro 2