Marginal utility, diminishing marginal utility

What is the marginal principle?

Considering small changes to a particular output/input

What is Marginal utility?

The benefit to the consumer of consuming an additional good/service

What is the equation for Marginal utility?

What is the equi-marginal principle?

When the marginal utility per dollar spent is equal to the marginal utility of good y per dollar spent

What is the law of diminishing marginal utility?

As you consume more units, the additional utility from additional units is less than additional utility from previous units

What is a variable cost?

Expenses that change as output changes e.g. raw materials

What are fixed costs?

Expenses that don’t change as output changes

What is the equation for Total Costs?

TC = FC+ VC

What is Marginal cost?

The cost of producing an additional unit

What is the equation for marginal cost?

How do firms maximise profit?

→ Minimising costs

→ Maximising revenue

Flip

SHORT RUN:

→ At least one F.O.P is fixed

\
LONG RUN:

→ All F.O.P are variable

What is the law of diminishing returns?

When an additional FOP is added to fixed FOP, eventually there comes a point in time where additional output added by extra workers is less than additional output added by previous workers

As output increases, averages costs increases. Why?

Each additional worker provides more additional output than the previous worker, before the law of diminishing returns sets in

Graph showing diminishing returns:

Why are firms price makers?

Firms can influence price as they provide sufficient output to influence market supply

What is marginal revenue?

Additional/change in revenue from selling an additional unit of output