Unit 3 Micro Flashcards
(49 cards)
Profits
Quantity x price
Profit-explicit costs= accounting profits
accounting profits-implicit costs= economic profits
How to interpret economic profit
If it is negative, they shouldn’t be in business
If it is positive, they should be doing things to increase profits
If it is zero, then profits are normal and do nothing
What are the 3 rules for profit maximization
- Marginal revenue>= marginal cost
- Marginal profit>0
- Total profit is greaters
- -(Total revenue - total cost)
- -(product x selling price) - ( product worker makes x salary of worker)
Types of costs
Total costs- made up of fixed and variable costs
fixed costs- long term costs like rent, factory, machinery
Variable costs- something that can be changed in the short run.
*** all costs are variable in the long run
How does the production function look
As number of workers increases, the quantity of product is increasing, decreasing, and then negative
-Bc of diminishing marginal returns
How does the marginal product of labor graph look
As number of wokers increases, marginal product increases, decreases, and then is negative
Production function and marginal product of labor relationship
The production function goes to negative where the marginal product of labor goes to negative
To find average fixed variable cost at x
Find the specified x value and look what price the FC or AVC curve is at at tht x-value
What is the total cost of x units
(Price of ATC at x=4)(4)= cost
What is the relationship between variable cost and marginal cost
Anything that changes either of them changes the other in the SAME DIRECTIOn
At any output less than the minimum cost output, what can you say about ATC and MC
AtC down, MC up
At any output greater than minimum cost output what can we say about ATC and MC
ATC up, MC up
Increasing returns
Economies of cale. Cost curve is going down
Decreasing returns
Diseconomies of scale. Cost curve is going up
Sunk cost
Money spent is money gone
Why does the AVERAGE fixed cost continually decline
Cost is fixed so as more product is produced AFC= fixed cost/units produced so AFC gets smaller and smaller as production increases
Why does the marginal cost curve fall at first and then go up
Law of diminishing marginal returns. FIrst goes down because more people means specialization of tasts, so production is more efficent and costs are cut. Then costs rise because too many cooks in the kitchen
where and why does the MC curve intersect AVC and ATC curves
At the minimum pts because when MC is higher than AVC/ATC it will pull them up with it
Effect on AFC, AVC, ATC, and MC: the nominal wages of workers is increased
AFC: same
AVC: goes up (original effect)
ATC: up
MC:up
Effect on AFC, AVC, ATC, and MC: New technologies developed, which increases productivity
AFC:same
AVC: down (original effect)
ATC: down
MC:down
Effect on AFC, AVC, ATC, and MC: Business property taxes are reduced
AFC: down (original effects)
AVC: same
ATC: down
MC:same
Effect on AFC, AVC, ATC, and MC: A slump-sum subsidy is given to all producers (same dollar amount given to each producer, no matter the size of production)
AFC: down (original effect) AVC:same ATC:down MC:same ** fixed cost down because government save producers money on fixed costs
Effect on AFC, AVC, ATC, and MC: Insurance rates on plants and equipment increased
AFC: up (original effect)
AVC:same
ATC:up
MC:same
Effect on AFC, AVC, ATC, and MC: The government imposes a per unit tax on $1 on each unit of production
AFC: same
AVC: up (original effect)
ATC: up
MC:up
