Unit 3 Econ Micro

Basic Accounting:

Revenue- money you take in (P X Q)

Costs- what you pay

Profit- what you keep

Fixed v Variable costs:

Fixed costs- do not change with production ex.) rent

Variable costs- change with products ex.) raw materials

*Total costs= Fixed + Variable

Explicit v implicit costs:

Explicit costs- out of pocket costs (the bills you paid)

Implicit costs- opportunity costs (what you could have been doing with your resources instead)

Accountants v Economists:

Accounting profit= Total Revenue - Explicit costs

Economic profit= Total Revenue - explicit costs - implicit costs

Films Production:

Total Physical production: (TP) total output or quantity produced

Marginal Product: (MP) additional output generated by input (workers)

Average Product: (AP) output per unit of input

Average product: Total product/ units of labor

Stages of products:

Increasing returns- MP is increasing
Diminishing returns- more input are added, total output keeps rising, but at a slower rate.
Negative returns- too much of one input. TP declines

Law of diminishing marginal returns- as you added input, to a fixed amount of resources eventually marginal product declines.

Long run v Short run

Short run: not enough time to change plant size. Some costs are fixed

Long run: can change plant size. All costs are variable

Perfect Competition:

4 possibilities:

Profit Maximizing rule: Marginal costs = Marginal Revenue

MC < MR = produce more, MC > MR = Product less

Side by Side graph;

film takes te price from the market (MR= D= AR= P)
Marginal Revenue = Demand = Average Revenue = Price
Firm faces a 100% elastic demand curve, they can sell as many units as they want at the market price
The firm will produce where MC=MR (profit max)

Long run equilibrium: P=ATC min = MR