Production, Firms

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8 Terms

1
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Equation for profit

pie = Total Revenue - Total Cost

= pq - c(q)

= TR - TC

2
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Relationship between MP and AP

As long as MP is above AP, AP is increasing. As long as MP is below AP, AP is decreasing.

3
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What is important to know about the Long Run?

In the Long Run, all inputs are variable. This means they can be substituted for each other while continuing to produce the same quantity.

4
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Definition of an isoquant?

A curve that shows the efficient combinations of labour and capital which result in the same level of output.

5
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What is the isoquant equation?

q (with line on top) = f(K,L)

6
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What is production function equation?

q = f(L, K)

7
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On an isoquant, if capital is fixed (say it is short run), what happens if you increase labour?

You move to a different isoquant. (Imagine like a isoquant map)

8
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For perfect substitutes, what is the formula and which good will be consumed (how much?)

Formula: U(X,Y) = ax + by