Extra Flashcards
(28 cards)
What is market equilibrium Price and Quantity equal to?
World price and quantity
Why does AC initially fall?
because MC<AC
When the cost of producing one additional unit (MC) is less than the average cost of all units produced (AC), the AC will decrease. This is because adding a unit with a lower marginal cost pulls down the overall average.
What is the short run time period?
Some variable costs, BUT because on input is fixed the firm will always face at least one fixed cost
What is the long run time period?
all inputs are variable, only has variable costs
what is a variable cost?
changes with output
- increase in output = increase in variable costs
What is a fixed cost?
does not change with output, still payed whether the firm is operating or not
What is the calculation for total cost?
total fixed cost + total variable cost
what is the calculation for average variable cost?
total variable cost / output
total cost - average fixed cost
What is the calculation for average cost?
total cost / output
Average variable costs + Average fixed costs
what is the calculation for marginal cost?
change in total cost / change in output
What is increasing returns?
a proportional increase in all inputs (like labor and capital) leads to a more than proportional increase in output
What is diminishing returns?
At some point the additions to output (marginal product) start to decrease
What does the MC curve show?
Helps us work out the quantity of output to produce
What does the AC curve show?
Helps is work out how much profit is being made at that output
How is the shape of AC driven by MC
initially MC is less than AC, so AC is being pulled down
When MC is greater than AC, AC is pulled up / rising
Whether MC is < or > AC, determines the slope of AC
What is spreading the overhead?
AVC gets closer to AC as output increases as AFC are smaller (spread over a larger quantity)
What curves change with changes in variable costs?
AC, MC, AVC all shift
What curves change with changes in fixed costs?
Only AC will shift
What are Economic costs?
Running costs + Opportunity costs
What is Economic profit?
revenue - economic costs
When is a return considered ‘fair’?
When a firm is making an economic profit of 0, included in their costs is a ‘fair’ return to business
Accounting profit = economic profit
When does the firm make a GREATER THAN FAIR return?
When Accounting profit > Opportunity cost
When does the firm make a LESS THAN FAIR return?
When Accounting profit < Opportunity cost
What is a cartel?
An illegal agreement between two or more competitors to restrict competition?
