ECON FINAL Needed Memorization

Marginal Cost Formula (Derivative)

DC(q)/dq

Avg Cost Formula

F/Q

Marginal Cost via MP_L

wage/MPL

Cost Function

wL+rK

Total Product of Labor

amount of output given amount of labor

Average Product of Labor

ratio of output (q) to workers (L) for the output

Isoquant

represents all possible combinations of two inputs (like labor and capital) that can be purchased for a given total cost

What determines whether input costs are fixed or variable?

Costs of inputs that can't be adjusted are fixed and costs of inputs that can be adjusted are variable.

What determines the shapes of short-run cost curves (VC, MC, AC)?

The shapes of SR cost curves (VC, MC, AC) are determined by the production function.

What happens to VC and total cost (C) when a variable input has diminishing marginal returns?

When a variable input has diminishing marginal returns, VC and C become steep as output increases.

What happens to AC, AVC, and MC curves when there are diminishing returns?

AC, AVC, and MC curves rise with output when there are diminishing returns.

What is the relationship between MC and AVC/AC curves?

When MC lies below AVC and AC, it pulls both down; when MC lies above AVC and AC, it pulls both up.

Where does MC intersect AVC and AC curves?

MC intersects AVC and AC at their minimum points.

How many equivalent output rules can a firm use for profit maximization?

A firm can use one of three equivalent output rules to choose how much output to produce.

What is the first profit maximization output rule?

A firm sets its output where its profit is maximized.

What is the second profit maximization output rule?

A firm sets its output where its marginal profit is zero.

What is the third profit maximization output rule?

A firm sets its output where its marginal revenue equals its marginal cost.