AP Micro - Chapter 3 Vocab

marginal product

the additional output produced by one more unit of a variable input (often labor); MP = change in total product/change in labor

average product

the average quantity of output produced by one more unit of a variable input, often labor; AP = TP/L

marginal cost

the additional cost of producing one more unit of output; MC = change in total cost/change in quantity

average variable cost, average fixed cost, average total cost

AVC = VC/Q; AFC = FC/Q; ATC = TC/Q

returns to scale

how much input increases in response to a change of all input

increasing returns to scale

output is increasing at a faster rate than all inputs

decreasing returns to scale

output is increasing at a slower rate than all inputs

economies of scale

left of LRATC

diseconomies of scale

right of LRATC

constant returns to scale

constant LRATC

explicit costs

out of pocket expenses, actual money spent

implicit costs

income forgone, the money value of one’s opportunity cost

total revenue

price x quantity

accounting profit

total revenue - explicit costs

economic profit

total revenue - total costs

normal profit

when total revenue covers explicit and implicit costs

profit maximization rule

MR = MC

marginal revenue

change in total revenue/ change in quantity

marginal cost

change in total cost/ change in quantity

when MR = MC, if TR>TC

the firm is making an economic profit

when MR = MC, and TR=TC

a firm is at its break even point (firm isn’t earning a profit or a loss, they can cover all costs, and can now begin earning revenue)earns normal profit

when MR = MC, and TR<TC

a firm is experiencing economic loss