micro unit 3

Increasing marginal returns

when the next worker produces more marginal product than the previous worker

total product goes up and marginal product goes down

Diminishing marginal returns

when the next worker produces less marginal product than the previous worker.

total product goes up, but at a diminish rate, while marginal product goes down

Negative marginal returns

when the next worker causes marginal and total product to decrease

total product decreases while marginal product is negative

law of diminishing returns

as a firm hires more workers (resources) eventually the additional production of each worker begins to diminish

total product

total amount of product produced

marginal product

the additional product the next worker produces

total fixed costs

costs that don’t change with output

graphically, it is a horizontal line

total variable

costs that do change with output

graphically, it is an upward sloping line

total costs

the sum of total fixed costs and the sum of total variable costs

graphically, it is an upward sloping line

marginal costs (mc)

the cost of producing the next unit

graphically, it is a u-shaped sloping line

average fixed cost (afc)

total fixed cost divided by output

graphically, it is a downward sloping line

average variable cost (avc)

total variable cost divided by output

graphically, it is a u-shaped line

average total cost (atc)

the sum of average fixed cost and average variable costs

graphically, it is a u-shaped line

a per unit tax:

causes marginal cost, average variable cost, and average total cost to increase

a lump sum tax causes:

average fixed cost and average total cost to increase

when long run ATC curve decreases:

a firm experiences economies of scale

when long run ATC curve is constant:

a firm experiences constant returns to scale

when long run ATC curve increases:

a firm experiences diseconomies of scale

accounting profit

revenue - explicit costs

economic profit

revenue - explicit costs - implicit costs (o.c.)

characteristics of perfect competition:

many buyers and sellers

ease of entry and exit

price takers (no control of price)

sell identical products

Long run, all break even

Long run, all are efficient

Profit maximizing quantity (point)

Where marginal cost (MC) equals marginal revenue (MR), leading to optimal output in profit maximization.

the cost to produce the profit maximizing point is where the profit maximizing point intersects the ATC curve

the revenue generated by selling the profit maximizing point is where the profit maximizing point intersects the Demand Curve

Long run or zero economic proft

A firm achieves allocative and productive efficiency

The cost and revenue at the profit maximizing point is equal

short run economic profit

the revenue at the profit maximizing point is greater than the cost at the profit maximizing point

short run loss

the revenue at the profit maximizing point is less than the cost at the profit maximizing quantity

shut down point

when the revenue at the profit maximizing point is less than the average variable cost at the profit maximizing point