Microeconomics Chapter 9-11

What are diseconomies of scale?

In time the expansion of a firm may lead to diseconomies and therefore higher average total costs. The main factor that the difficulty of efficiently controlling and coordinating a firm's operations as it becomes a large-scale producer.

Total Product, Marginal Product and Average Product

Increasing Marginal Returns - Everything that goes up goes up Diminishing Marginal Returns - Everything that goes up goes down Negative Marginal Returns - Everything that goes down goes down O - AP = MP

What does the shape of the long run average cost curve tell us about the industry?

That the more you keep adding production and facilities you have, you discover the workers are going to disengage so you get them to focus and get back on track by specializing workers so they're able to speed up production.

What is the relationship between the short run average cost curve and the long run average cost curve?

The long run is made of of a bunch of short runs, and the long run eventually works the same as the short runs.

Implicit Costs

The monetary income a form sacrifices when it uses a resource it owns rather than supplying the resource in the market; equal to what the resource could have earned in the best-paying alternative employment ; includes a normal profit.

Explicit Costs

The monetary payment made by a firm to an outsider to obtain a resource.

Pure Competition

-Many, many firms, Homogeneous Products (everyone is producing the same exact same thing), No control over price "price takers", Easy to enter/Easy to exit, Perfect Information

Average Product

-Output per unit of labor input -Upward U shape AP = Total Product (Mean Total) / Units of Labor

Total Variable Costs

-The costs that change with the level of output. -The curve is right underneath Total costs and crosses TFC TVC = TC - TFC

Total Fixed Costs

-The costs that do not vary with changes in output. -The curve is a straight line that's pretty low on the graph TFC = TC - TVC

Average Variable Cost

-The curve is U-shaped because of the law of diminishing returns AVC = TVC / Q

Average Fixed Cost

-The curve is decreasing and then flat lines because of the law of diminishing returns AFC = TFC / Q

Marginal Costs

-The extra or additional cost of producing one more unit of output. -The curve goes diminishes a bit in the beginning and then sky rockets up and it's because of the law of diminishing returns. MC = Change in TC / Change in Q (1)

Marginal Product

-The extra output or added product associated with adding unit of available resource, in this case labor, to the production process. -Goes negative MP = Change in Total Product / Change in Labor Input

Total Costs

-The sum of fixed cost and variable cost at each level of output. -The curve is the TFC curve and the TVC curve TC = TVC + TFC

Total Product

-Total quantity or total output produced -The curve shoots up

Marginal Cost, Average Variable Cost, Average Fixed Cost and Average Total Cost

A - MC B - ATC C - AVC D - AFC

Oligopoly

A Few firms, **mutual independence, limited price control

"Price Taker"

A seller (or buyer) that is unable to affect he price at which a product or resource sells by changing the count it sells (or buys).

Average Total Cost

ATC = TC / Q or ATC = AFC + AVC

Why is the distinction between fixed and variable costs only relevant in the short run?

Because short run has both variability and fixedness, long run only has variability.

Monopolistic Competition

Many firms, **product differentiation, limited price control, relatively easy entrance/exit

More on pure competition

Not realistic in the real world, perfectly elastic demand, total revenue would increase at a constant rate, marginal revenue=average revenue.

Pure Monopoly

One firm, unique, considerable price control "price makers", entry is blocked

Four Types of Market Structures

Pure Competition, Monopolistic Competition, Oligopoly and Pure Monopoly.

What is the difference between short run and long run?

Short Run -At least one input is fixed (labor is variable, time, capital and production process is fixed) -Cost curves are operating curves Long Run -All inputs are variable (labor, time, capital and production process is all variable) -Cost curves are planning curves

What are the economies of scale?

They pretty much explain the downward sloping of the long run curve. As plant size increases, a number of factors will for a time lead to lower average costs of production.

Accounting Profits

Total Revenue - Explicit Costs

Economic Profit

Total Revenue - Explicit Costs - Implicit Costs

Law of Diminishing Returns

When additional units of a variable input are added to fixed inputs after a certain point, the marginal product of the variable input declines.