AP Micro -- Unit 3

Total Revenue (TR)

price of each unit x quantity sold

Total Cost (TC)

FC + VC

Fixed Costs (FC)

do not change with quantity (typically one-time costs)

Variable Costs (VC)

strictly based on quantity

Total profit

TR-TC

Marginal Cost (MC)

the cost of each additional unit

Efficient scale

ATC is at its lowest

Economy of scale

ATC is falling

Diseconomy of scale

ATC is rising

Marginal Cost (MC) intersects ATC at

Efficient scale

Perfect competition

all firms sell an identical product and are forced to charge the market price

MR PARD

Marginal Revenue (MR) = Price (P) = Average Revenue (AR) = Demand (D)

max profit quantity

Marginal Revenue (MR) = Marginal Cost (MC)

accounting profit

calculating earnings/profit without considering opportunity cost

economic profit

calculating earnings/profit with respect to better options and opportunity cost

Price > ATC

firm is earning profit

Sunk cost

not an ongoing cost

essentially “lost money” that you have to move on from