C6 C7: Costs

Question 1

Conditions Profit max

Answer 1

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

Question 1

Efficient production

Answer 1

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

Question 2

Production Function

Answer 2

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

Question 3

In SR

Answer 3

K is fixed

(para las flashcards lo llamaremos K!)

Question 4

Average Product of Labour: APL

Answer 4

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

(para K, cambias L por K)

Question 5

Marginal Product of Labour: MPL

Answer 5

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

(para K, cambias L por K)

Question 6

Grafico APL, MPL

Answer 6

Grafico
MPL<APL

Question 7

Law Diminishing returns

Answer 7

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

Question 8

Law of diminishing returns calculo

Answer 8

dMP/dL < 0

Segunda derivada de la funcion f(L,K)

Question 9

In LR

Answer 9

All factors can vary

Question 10

Isoquant

Answer 10

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

Question 11

Isoquant for q!

Answer 11

q! = f(L,K)

Question 12

Properties of Isoquants

Answer 12

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

Question 13

Isoquant graphs and equations

Answer 13

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

Grafico de cada uno

Question 14

Slope isoquants

Answer 14

Marginal Rate of Technical Substitution (MRTS)

Question 15

MRST

Answer 15

dK/dL

-MPL/MPK

Question 16

Returns to scale

Answer 16

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

Question 17

Constant returns to scale

Answer 17

If output rises by in the same proportion than inputs

Question 18

Increasing returns to scale

Answer 18

If output rises more than in proportion to inputs

Question 19

Decreasing returns to scale

Answer 19

If output rises less than in proportin to inputs

Question 20

Opportunity cost

Answer 20

Value of next best alternative

Question 21

Explicit Cost

Answer 21

Costs that are priced in the market

Question 22

Implicit cost

Answer 22

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

Question 23

Sunk cost

Answer 23

Unavoidable costs

Question 24

SR Costs: Fixed costs FC

Answer 24

Arise from fixed inputs

Question 25

SR Costs: Variable costs VC

Answer 25

Arise from variable inputs VC= VC(q)

Question 26

SR Costs: Total costs

Answer 26

Fixed + Variable C(q) = FC + VC(q)

Question 27

SR Costs: Marginal costs MC

Answer 27

dC(q)/dq

Question 28

SR Costs: Average costs AC

Answer 28

Total costs/q AFC + AVC

Question 29

Graficos Costs, Average costs

Answer 29

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

Question 30

Como hacer incremento de costes

Answer 30

Incremento en variables Incremento en fijos

Question 31

Costs in terms of inputs

Answer 31

C = rK + wL

Question 32

Costs in terms of inputs: In SR

Answer 32

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

Question 33

Shape MC (SR)

Answer 33

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)

Question 34

Shape AVC

Answer 34

w·1/APL Mismo razonamiento q MC Shape me lo se

Question 35

Shape AC

Answer 35

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

Question 36

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

Answer 36

Me lo se, pero vamos dibujar el grafico

Question 37

Long run costs: Isocost Lines

Answer 37

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

Question 38

Long run costs: Optimal bundle

Answer 38

Grafico Interseccion isoquant con isocost

Question 39

Requerimientos optimal bundle

Answer 39

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

Question 40

Encontrar optimal bundle

Answer 40

Con las ecuaciones de los requerimientos

Question 41

Cost minimizing problem

Answer 41

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

Question 42

Long run cost function def.

Answer 42

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

Question 43

Long run cost function

Answer 43

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