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1

Profit Formula

Total Revenue - Total Cost

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2

Total Opportunity Cost Formula

Total explicit cost+ total implicit cost

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3

What does it mean if your total revenue is higher than the sum of your implicit and explicit costs?

Operating your business is better than another activity.

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4

What does it mean if your total revenue is lower than the sum of your implicit and explicit costs?

Another activity aside from your business is better for your time and resources.

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5

What is the optimal output rule?

Profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost.

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6

What is the principle of marginal analysis?

Every activity should continue until marginal benefit equals marginal cost.

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7

Marginal Revenue Formula

Change in total revenue/change in qty of output

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8

What is the optimal output rule?

Profit is maximized by producing the qty of output at which the marginal revenue of the last unit produced is equal to its marginal cost.

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9

Grpah showing marginal revenue curve, marginal cost curve, and optimal output.

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10

What is the production function?

The relationship between the qty of outputs a firm uses and the qty of output it produces

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11

What is the relationship between quantity and the long run?

All inputs can be varied

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12

What is the relationship between quantity and the short run?

At least one input is fixed

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13

Total Product Curve

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14

Marginal Product of Labor Formula

Change in qty/change in labor

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15

Marginal product of labor graph

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16

Total Cost Curve

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17

Marginal Cost Formula

Change in total cost/ Change in qty of output

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18

Marginal Cost Curve

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19

Average Cost formula

total cost/qty of output

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20

Average Total Cost Curve

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21

Average Fixed Cost Formula

Fixed cost/ qty of output

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22

Average variable cost formula

Variable cost/ qty of output

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23

What is the spreading effect

The larger the output, the greater the qty of output over which fixed cost is spread, leading to a lower average fixed cost.

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24

What is the diminishing returns effect?

The larger the output, the greater the amount of variable input required to produce additional units, leading to a higher average variable cost.

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25

Graph with mcc, atc, avc, afc

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26

What is the minimum cost output

The qty of output at which avg total cost is lowest, it corresponds to the bottom of the U shaped average total cost curve.

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27

What are the three general principles that are always true about a firmâ€™s marginal cost and average total cost curves?

At the minimum cost, average total cost is equal to marginal cost

At output less than the minimum cost of output, marginal cost is less than average total cost and average total cost is falling

At output greater than the minimum cost of output, marginal cost is greater than atc, and atc is rising

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28

What is the actual curvature of the mcc?

It curves downward as a firm increases its production from zero up to some low level, sloping upward only at higher levels of production.

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29

What is the actual curvature of the atc?

It is U shaped, mcc goes through the min point of atc

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30

What is the actual curvature of the avc?

Itâ€™s U shaped

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31

What is the actual curvature of the average fixed cost curve?

Backwards exponential

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32

Average fixed cost curve

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33

When do low fixed costs yield lower average total cost?

At low output levels

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34

When do high fixed costs yield higher average total cost?

At high output levels

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35

Graph that shows lratc, economies and diseconomies of scale

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36

What determines the shape of the lratc?

Returns to scale

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