Micro2

• Level of happiness one gets from consuming something.
• The satisfaction experienced from comsuming a good.

The change in total utility from one additional unit of good.

• The more you consume something the less it satisfies.
• As the consumption of a particular good increases, marginal utility decreases.

• Consumers will allocate their income such as the last dollar spent on each good yeilds the same marginal utility.
• Pick the combination that makes the marginal rate of substitution equal to the price ratio.

(MU_x/P_x)=(MU_y/P_y)

• "What you can afford"
• The line connecting all the combinations of two goods that exhaust a consumer's budget.
• *line on graph (graph 1)

• "How much utility" Curves showing the varations of two goods which yeild the same level of satisfaction.
• A curve showing the different combinations of two goods that generate the same level of utility or satisfaction.
• *curve on graph (graph 2)

• 1. Slopes downward
• 2. Bowed inward
• 3. Indifference curve futher out preferred (graph 3)
• 4. Indifference curves do not intersect (graph 4)

-(MU_x/MU_y)

Total revenue minus total cost

• Total revenue minus explicit cost.
• Total revenue minus accounting cost, the explicit cost of production.

• Total revenue minus explicit and implicit cost.
• Total revenue minus economic cost, the oppotunity cost of the inputs used in the production process; equal to explicit cost plus implicit cost.

larger than economic profit.

• "Out of pocket" cost
• A monetary payment.

• Opportunity cost; normal rate of return.
• An oppotunity cost that does not involve a monetary payment.

• Cost that do not change; stay the same, ex. rent, property tax. If the input is 0 and you have any cost, that is a fixed cost.
• Cost that does not vary with the quantity produced.

• Costs that do vary with the level of output.
• Cost that varies with the quantiy produced.

• The additional cost of producing one more unit of output.
• The additional cost resulting from a small increase in some activity.

Total Cost (TC) = Total Fixed Cost (TFC) - Total Variable Cost (TVC)

Average Fixed Cost (AFC) = Total Fixed Cost (TFC) / Quantity of Output (Q)

Average Variable Cost (AVC) = Total Variable Cost (TVC) / Quantity of Output (Q)

• Average Total Cost (ATC) = Total Cost (TC) / Quantity of Output (Q)
• Average Total Cost (ATC) = Average Fixed Cost (AFC) + Average Variable Cost (AVC)

• Marginal Cost (MC) = Change of Total Cost (TC) / Change in output (Q)
• Marginal Cost (MC) = Change in Total Variable Cost (TVC) / Change in output (Q)

decreases as the level of output increases.

• As one input increases while the other imputs are held fixed, output increases at a decreasing rate.
• *When cost tends to rise, that when diminishing return is setting in.

their minimum point.

Time period where you have atleast one fixed cost; firms can not exit or enter the industry. (graph 7)

All costs are variable; firms are free to enter or exit an industry. (graph 8)

• Large number of firms producing a standardized product.
• A market with many sellers and buyers of a homogeneous product and no barriers to entry.

• 1. Large number of firms
• 2. Standarized product
• 3. "Price takers"-no control over market price
• 4. No significant barriers to enter or exit the market

price (P)

• The additional revenue from selling one more unit.
• The change in total revenue from selling one more unit of output.

MR = change in TR / change in Q

MR=MC

• Minimum point on the Average Variable Cost curve.
• The price at which the firm is indifferent between operations and shutting down; equal to the minimum average variable cost.

The MC above the AVC.

Break even