AP Microeconomics 3.2;3.4 review

LRATC

LRATC

long run average total cost

The LRATC curve is

U shaped and made up of various potential SRATC curves

LRATC def

lowest cost per unit at each level of output, assuming all factors are variable.

economies of scale

LRATC decreases as output increases.

economies of scale slope is

downward

increasing returns to scale (economies of scale)

increase in inputs causes larger increase in output.

constant returns to scale

LRATC is constant as output increases

constant returns to scale slope

0

dis-economies to scale

LRATC increases as output increases

dis-economies to scale slope

upward

decreasing returns to scale (dis-economies to scale)

increasing input causes lesser increase in outputs.

profit formula

revenue - cost

revenue formula

price x quantity

explicit cost

out of pocket payments that are actually made. (money physically spent)

implicit cost

value of the benefits that are foregone. (the opportunity cost)

accounting profit

revenue - explicit cost

economic profit

revenue - (explicit and implicit cost)

normal profit

0; revenues - explicit cost- implicit cost

with normal profit resources

cannot be made better off in any other way; normal profit is a good thing.