Chapter 11 Flashcards
(17 cards)
How many types of costs are there
7 lol
Def of a Fixed cost
Cost that does not vary with the level of output in the short run (the cost of all fixed factors of production) e.g property taxes, insurance payments
Def of a variable cost
Costs that varies with the level of output in the short run (the cost of all VARIABLE factors in production)
Variable cost depends on the _________________, whereas fixed cost ________.
Output level produced, does not
Def of a total cost
All costs of production: the sum of variable cost and fixed cost
Avg fixed cost, avg variable cost and avg total cost
FC/quantity of output, VC/quantity of output, TC/quantity of output
Marginal cost is the
Change in total cost that results from a one-unit change in output
MC = change in TC / change in Q = chang in VC / change in Q
MC curve cuts the AVG VC curve at the
Minimum value of the AVC
Minimum of a MC curve corresponds to
The maximum of a MP curve
Minimum of AVC curve corresponds to
Maximum of AP curve
MC = w/MP
AVC = w/AP
What happens to variable cost when diminishing returns set in
They increase at an increasing rate
Markets characterized by declining long-run average costs are often referred to as
Natural Monopolies
optimality requires
MPL/MPK = w/r
where w and r is wages and cost of capital
This production function is convex and therefore the firm will minimize costs by
utilizing either capital or labour, not both
Whats the relation between marginal cost and marginal product
MC = dVC/dQ = wdL/dQ = w/MP
What does a constant return to scale mean for the long run Total cost
Means LRTC will have a constant slope (straight line)
