AP Microeconomics - Unit 3

Short run

At least one input of your production function is fixed.

Long run

None of your inputs in a production function are fixed.

How are MC & AVC related

AVC decreases as MC<AVC

AVC increases as MC>AVC

How are MC & ATC related

ATC decreases as MC<AVC

ATC increases as MC>AVC

How does profit maximization work in the short run?

Produce enough product such that MR=MC

What does the total cost at 0 units produced indicate?

Fixed costs

How are MP and MC related?

MC is inversely correlated to MP

What does a long-run ATC curve represent?

The most optimal short run ATC curve for a given quantity (preferably a minimum at that quantity)

What causes economies of scale?

Specialization of labor, bulk purchases (sourcing)

What causes diseconomies of scale?

Coordination issues, increased labor costs

What does minimum efficient scale mean?

The lowest cost per unit availiable for a firm in the long run

Why is MES directly correlated to market concentration?

The higher scale needed to stay competitive, the less firms are going to be able to compete