ECON 121 Utility and Cost Curves

Marginal Utility (MU)

The satisfaction you get from consuming one additional unit of a product above and beyond what you have consumed up to that point

If we had unlimited money, would we buy unlimited goods?

No, diminishing marginal utility

MU

Marginal utility per dollar spent

Income = Expenditures

I=px*x+py*y

Average Total Cost

ATC=AFC+AVC. It is u-shaped because AVC is.

AVC

Is u-shaped, starts out sloping down, then eventually up. Productivity rises for a while, then eventually falls.

AFC

FC/Q

The 4 costs of a cost curve

ATC, AVC, AFC, MC

Marginal Cost

The increase in total cost from increasing the level of output by 1 unit.

When the MC is above (higher) the ATC

The ATC is growing

When the MC is lower (below) ATC

The ATC is decreasing

Cost Curves Checklist

Is the AFC downward-sloping, Is the AVC U-shaped, Is the ATC U-shaped, Do the AVC and ATC get closer, Does the MC cross the ATC and AVC at their minimum

When Firms maximize profit

MR=MC

Features of a perfectly competitive market

Both buyers and sellers are price setters, no barrier to entry, homogenous product (they are all the same)

Marginal Revenue

Change in total revenue associated with a change in quantity

Marginal Cost

Change in cost associated with a change in quantity

What controls the price firms can charge

The market they are in

The opposite ends of the market spectrum

Pure & perfect competition and Monopoly