micro econ exam 2

Explicit cost

a cost that involves spending money

implicit cost

$ lost from choosing something else

opp cost formula

explicit + implicit cost

accounting profit formula

total revenue - explicit costs

Economic Profit formula

rev - opp cost

capital

physical and financial assets

financial assets

stocks, bonds, ect

physical assets

building, equiplent, tools

implicit cost of capital

$ lost from not using $ for something else

MC

Marginal cost; much for 1 more

MB

marginal benefit

Optimal Quantity

max profit; MB = MC

sunk cost

$ u cant get back

Bounded Rationality

good enough

ultils

satisfaction

MU(marginal utility)

Δ total ultility

----------------

Δ quantity

BL(budget line)

what is like a production possibilities fromtier but for people buying stuff

MU per dollar

aditional utility gained from spending one more dollar

MU

-----

P

substitution effect

Pa goes up; Qa goes down and Qb goes up

income effect

buy less or more bc price change makes them feel more rich or poor

fixed input

stuff that doesnt change; land

varable input

stuff that changes; labor, raw materials, ECT

long run

enough time for all inputs to change

short run

time where atleast 1 input stays the same

total product curve

Y axis- quantity able to produce

X axis- quan of fixed input

MPL formula

Δ Q

-------

Δ L

average product of labor

Q

---

L

FC

fixed cost

VC

variable cost

TC formula

Total cost; FC+ VC

ATC formula

TC

----

Q

AFC formula

FC/Q

AVC formula

VC/Q

spreading effect

as Q goes up; AFC goes down

diminishing returns effect

a little more Q brings AVC down but alot more Q brings AVC up

minimum-cost output

ATC lowest; bottom of U

increasing returns to scale

when long-run average total cost declines as output increases

decreasing returns to scale

when in long term ATC increases

LRATC

long run average total cost

price taking producers/consumers

Dont impact market

Perfect Competition

everyone is a price taker

marginal rev

Δ total rev

-------------

Δ Q

Profit Maximization in PC

when MR = MC

average profit

prof

-------

Q

shutdown

when P < AVC of prof maximization

market power

(in monopoly) ability to raise market prices

price descrimination

diff ppl pay diff prices

HHI

MSa^2 + MSb^2+ MSc^2......

game theory

prisoner dielemma thing

Nash/noncooperative equilibrium

both lose

mono comp short run

profit occurs in the gap between demand curve and marginal rev curve

mono comp long run

gap beteen demand curve and marginal rev curve closes