Micro Econ

total cost (TC)

total cost (TC) is the sum of all fixed and variable costs

The law of diminishing (marginal) returns

The law of diminishing (marginal) returns states that as we continue to add more of any one input (holding the other inputs constant), its marginal product will eventually decline.

The least-cost rule

The least-cost rule states that a business firm will produce any given output level using the least-cost combination of inputs available to it.

The marginal product of labor

The marginal product of labor - (MPL) is the change in total product (ΔQ) divided by the change in the number of workers employed (ΔL):

Short Run

The short run is a time period during which at least one of the firm's inputs is fixed.

Total Product

Total product is the maximum quantity of output that can be produced from a given combination of inputs.

Profit

Total revenue minus total cost.

Long Run Total Cost (LRTC)

long-run total cost (LRTC), tells us the cost of producing each quantity of output when the least-cost input mix is chosen

Difference between Short-Run and Long-Run

the major differences between short-run and long-run production by comparing your fixed and variable factors of production.

average fixed cost (AFC)

AFC is its total fixed cost divided by the quantity

Marginal cost (MC)

Marginal cost (MC) is the change in total cost (?TC) divided by the change in output (ΔQ)

production

Production is the process of combining inputs to make goods and services

Long Run

The Long Run is a time period long enough for a firm to change the quantity of all of its inputs.

fixed costs

The costs of a firm's fixed inputs

variable costs

The costs of obtaining the firm's variable inputs

firms

organizations owned and operated by private individuals that specialize in production.

Marginal product (MP)

the change in total product (TP) resulting from the use of one more (or less) unit of labour (L): MP = ΔTR/ΔL

...

the long-run total cost of producing a given level of output can be less than or equal to, but not greater than, the short-run total cost (LRTC ≤ TC).

total fixed cost (TFC)

), the cost of all inputs that are fixed in the short run.

Implicit Cost

An opportunity cost but no actual payment is made.

total variable cost (TVC

), the cost of all variable inputs. For Spotless, labor is the only variable input.

Explicit Cost

An opportunity cost where an actual payment is made

Average total cost (ATC)

Average total cost (ATC) is the total cost per unit of output:

Average variable cost (AVC)

Average variable cost (AVC) is the cost of the variable inputs per unit of output

economies of scale

Long-run average total cost decreases as output increases.

diseconomies of scale

Long-run average total cost increases as output increases.

constant returns to scale

Long-run average total cost is unchanged as output increases.

Sunk cost

a sunk cost is one that already has been paid, or must be paid, regardless of any future action being considered.

variable inputs

inputs that can be adjusted up or down as desired.

Fixed Inputs

inputs that, over the time period we're considering, cannot be adjusted, even if the firm's level of output changes.

long-run average total cost (LRATC)

long-run average total cost (LRATC), the cost per unit of output in the long run: