ap micro chapter 7 and 8

ap micro

Distinguish between explicit and implicit costs, and between normal and economic profits.

Explicit costs are out of pocket, whereas implicit costs are what are forgone by using current resources

Explain why normal profit is an economic cost but economic profit is not.

Normal profit is subtracted from Accounting profit to calculate Economic profit

Explain the law of diminishing returns.

As additional units of a variable resource such as labor are added to a fixed resource such as capital, EVENTUALLY or beyond some point, the additional, or marginal, product attributable to each additional unit of the variable resource will decline

Differentiate between the short run and the long run.

Short run must have at least one fixed cost/resource while all costs are variable in the long run

Compute marginal and average product when given total product data.

MP = change in TP

                      change in input

AP =        TP

                     # of inputs

Explain the relationship between total, marginal, and average product.

When MP is ↑, TP is ↑ at an ↑ rate & AP is ↑

When MP is ↓, TP is ↑ at a ↓ rate & AP is ↑ then ↓

AP is ↑ when MP is above AP

AP is at its peak when it = MP

AP is ↓ when MP is below AP

Distinguish between fixed, variable and total costs.

FC don’t 🔺 when quantity changes

VC 🔺s when quantity changes

TC = FC + VC

Explain the difference between average and marginal costs.

MCs are variable costs & 🔺 in TC

AC are variable costs

Compute AFC, AVC, ATC, and marginal cost when given total cost data.

   AFC = total FC

                      # of outputs

    AVC =   total VC

  # of outputs

   ATC =       TC

 # of outputs