Unit 3 Perfect Comp Flashcards
Fixed Costs (FC)
Costs that do not change with output.
Variable Costs (VC)
Costs that change with output.
Total Cost (TC)
All costs at a given output.
Formula: TC = FC + VC
Marginal Cost (MC)
Cost of producing one more unit.
Formula: MC = ΔTC / ΔQ
Average Total Cost (ATC)
Cost per unit.
Formula: ATC = TC / Q or ATC = AFC + AVC
Average Fixed Cost (AFC) Form
Formula: AFC = FC / Q
Average Variable Cost (AVC) Form
Formula: AVC = VC / Q
Marginal Cost Curve Shape
U-shaped due to diminishing marginal returns. nike logo
MC intersects ATC and AVC at their minimums
Always crosses at their lowest points.
All inputs are variable in the long run.
Firms can scale up or down fully.
Economies of Scale
Long-run average total cost decreases as output increases.
Due to specialization, bulk buying, better tech.
Constant Returns to Scale
Output and cost rise at the same rate.
Diseconomies of Scale
Long-run average total cost increases as output increases.
Due to management issues, inefficiencies.
Long-Run ATC Curve (LRATC)
U-shaped curve made from short-run curves’ lowest points.
Natural Monopoly
One firm can make everything cheaper than many firms.
Caused by long-lasting economies of scale.
Accounting Profit
Total revenue – explicit costs
Only out-of-pocket costs are counted.
Economic Profit
Total revenue – explicit and implicit costs
Normal Profit
Economic profit is zero. You’re covering all your costs.
You’d earn the same elsewhere.
Positive Economic Profit
Making more than opportunity cost. Other firms want to join.
Negative Economic Profit
Making less than opportunity cost. Firms may leave.
Explicit Costs
Real money costs (wages, rent, materials).
Implicit Costs
Opportunity costs (like your time or your money elsewhere).
Marginal Revenue (MR)
Money made from selling one more unit.
Marginal Cost (MC)
Cost of making one more unit.
