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Microeconomic Theory > C6 C7: Costs > Flashcards

C6 C7: Costs Flashcards

1
Q

Conditions Profit max

A
  1. Find profit max Q
  2. Producing in an efficient way
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1
Q

Efficient production

A

Not being able to produce the current level of output with fewer/cheaper resources

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2
Q

Production Function

A

q=f(L,K)
L: labour in hours worked
K: Capital

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3
Q

In SR

A

K is fixed

(para las flashcards lo llamaremos K!)

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4
Q

Average Product of Labour: APL

A

q/L -> f(L,K)/L

(para K, cambias L por K)

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5
Q

Marginal Product of Labour: MPL

A

MPL: dq/dL -> df(L,K)/dL

(para K, cambias L por K)

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6
Q

Grafico APL, MPL

A

Grafico
MPL<APL

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7
Q

Law Diminishing returns

A

If a firm keeps increasing an input, holding the other constant (as well as tech etc) the corresponding increase in output will eventually become smaller

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8
Q

Law of diminishing returns calculo

A

dMP/dL < 0

Segunda derivada de la funcion f(L,K)

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9
Q

In LR

A

All factors can vary

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10
Q

Isoquant

A

A curve that gives all the different combinations of L and K that can produce a single level of output q! (fixed)

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11
Q

Isoquant for q!

A

q! = f(L,K)

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12
Q

Properties of Isoquants

A
  1. The further from origin the bigger the output
  2. Do not cross
  3. Downward slopping
  4. Cannot be thick
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13
Q

Isoquant graphs and equations

A

Perfect substitutes: AL+BK
Perfect Compliments: min[AL, BK]
Imperfect subs/comp: el resto

Grafico de cada uno

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14
Q

Slope isoquants

A

Marginal Rate of Technical Substitution (MRTS)

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15
Q

MRST

A

dK/dL

-MPL/MPK

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16
Q

Returns to scale

A

By what proportion the output of a firm changes when we increase all inputs by the same proportion

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17
Q

Constant returns to scale

A

If output rises by in the same proportion than inputs

18
Q

Increasing returns to scale

A

If output rises more than in proportion to inputs

19
Q

Decreasing returns to scale

A

If output rises less than in proportin to inputs

20
Q

Opportunity cost

A

Value of next best alternative

21
Q

Explicit Cost

A

Costs that are priced in the market

22
Q

Implicit cost

A

Cost not explicitely priced in the market and not correspond to an explicit expenditure

23
Q

Sunk cost

A

Unavoidable costs

24
Q

SR Costs: Fixed costs FC

A

Arise from fixed inputs

25
Q

SR Costs: Variable costs VC

A

Arise from variable inputs
VC= VC(q)

26
Q

SR Costs: Total costs

A

Fixed + Variable

C(q) = FC + VC(q)

27
Q

SR Costs: Marginal costs MC

A

dC(q)/dq

28
Q

SR Costs: Average costs AC

A

Total costs/q

AFC + AVC

29
Q

Graficos Costs, Average costs

A

Graficos

Interseccion de MC en los minimos de AC, AVC
As MC below AC, every unit decreases AC, when above every extra unit increases AC

30
Q

Como hacer incremento de costes

A

Incremento en variables
Incremento en fijos

31
Q

Costs in terms of inputs

A

C = rK + wL

32
Q

Costs in terms of inputs: In SR

A

rK = fixed costs (K -> K!)
wL= VC (se puede hacer una funcion de q rearraging la equacion C= rK + wL)

33
Q

Shape MC (SR)

A

MC(q) = w · 1/MPL
(para esto si lo tenemos en terminos de inputs se rearrange para tener en terminos de q)

-> Opposite shape q MPL (me la se)

34
Q

Shape AVC

A

w·1/APL

Mismo razonamiento q MC
Shape me lo se

35
Q

Shape AC

A

AC = rK/q + w/APL
Igual q AVC pero por encima

36
Q

Grafico traduccion funcion f(L,K) a MPL, APL a MC, AVC,AC

A

Me lo se, pero vamos dibujar el grafico

37
Q

Long run costs: Isocost Lines

A

A line showing all combinations of L and K that cost the same amount

Grafico

38
Q

Long run costs: Optimal bundle

A

Grafico
Interseccion isoquant con isocost

39
Q

Requerimientos optimal bundle

A
  1. Has to be on isoquant
    q!= f(L,K)
  2. Slope isoquant = Slope isocost
    MRTS = -MPL/MPK tiene q ser igual q -w/r
40
Q

Encontrar optimal bundle

A

Con las ecuaciones de los requerimientos

41
Q

Cost minimizing problem

A

min C(L,K) = wL + rK
st q!= f(L,K)

Substitution como siempre

42
Q

Long run cost function def.

A

Gives us the total costs of a given q as a function of cost minimizing bundles of L and K for producing q

43
Q

Long run cost function

A

C(q) = wL(q) + rK(q)

Microeconomic Theory (11 decks)

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