Chapter 7: Microeconomics

profit marginal cost (MC)

This strategy is based on the fact that the total profit reaches its maximum point where marginal revenue equals marginal profit . This is the case because the firm will continue to produce until marginal profit is equal to zero, and marginal profit equals the marginal revenue (MR) minus the marginal cost (MC).

law of diminishing returns

Describes the effect that varying the level of an input has on total and marginal product

economies of scale

Factors that cause a producer's average cost per unit to fall as output rises.

productivity efficiency

Getting the most g/s out of a given amount of resources

unit labor cost

Hourly wage rate divided by output per labor-hour

constant returns to scale

If output increases by that same proportional change as all inputs change then there are constant returns to scale (CRS). If output increases by less than that proportional change in inputs, there are decreasing returns to scale (DRS).

implicit cost

In economics, an implicit cost, also called an imputed cost, implied cost, or notional cost, is the opportunity cost equal to what a firm must give up in order to use a factor of production for which it already owns and thus does not pay rent. It is the opposite of an explicit cost, which is borne directly.

average total cost (ATC)

In economics, average cost and/or unit cost is equal to total cost divided by the number of goods produced (the output quantity, Q). It is also equal to the sum of average variable costs (total variable costs divided by Q) plus average fixed costs (total fixed costs divided by Q).

average fixed cost (AFC)

In economics, average fixed cost (AFC) is the fixed costs of production (FC) divided by the quantity (Q) of output produced. Fixed costs are those costs that must be incurred in fixed quantity regardless of the level of output produced.

average variable cost (AVC)

In economics, average variable cost (AVC) is a firm's variable costs (labor, electricity, etc.) divided by the quantity of output produced. Variable costs are those costs which vary with the output.

factors of production

Land, Labor, Capital, Entrepreneurship

long run

Long run costs are accumulated when firms change production levels over time in response to expected economic profits or losses. In the long run there are no fixed factors of production. The land, labor, capital goods, and entrepreneurship all vary to reach the the long run cost of producing a good or service.

marginal physical product (MPP)

The marginal physical product (MPP) is another useful and important concept. MPP is defined as the additional output that results from the use of an additional unit of a variable input, holding other inputs constant. It is measured as the ratio of the change in output (TPP) to the change in the quantity of labor used.

production function

The relationship between the amount of resources employed and a firm's total product

explicit cost

a cost that involves spending money

variable costs

a cost that varies with the level of output.

fixed costs

business costs, such as rent, that are constant whatever the quantity of goods or services produced.

total cost

fixed costs plus variable costs

short run

production period so short that only variable inputs (usually labor) can be changed

opportunity cost

the most desirable alternative given up as the result of a decision

economic cost

the value of all resources used to produce a good or service; opportunity cost