Chapter 5 Notes

Chapter 5 Notes - Chapter 5: The Competitive Firm Relations...

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Unformatted text preview: Chapter 5: The Competitive Firm Relations between marginal and average functions: 1. Marginal above avg. avg. is rising 2. Marginal below avg. avg. is falling 3. Marginal = avg. avg. is constant Short Run (SR) Time where firm must incur TFC regardless of level of output Rent, loans, taxes Total Fixed Cost (TFC) Paid even if production is 0 Rent, loans, taxes TC = TFC+TVC Total Variable Cost (TVC) Costs that rise as output rises Materials, labor, transportation Greater the firms production greater the costs Produce nothing costs are 0 Total Cost (TC) Entire opportunity cost to produce a given output Point of Diminishing Returns Where slope of TC curve reaches a minimum Formulas ATC = TC/Q AVC = TVC/Q AFC = TFC/Q ** ATC = AVC + AFC Marginal Cost (MC) Cost of producing one more unit TC/Q ** MC passes through min of both avg. curves Average Revenue (AR) TR/Q or AR = P Marginal Revenue (MR) Change in TR for selling an additional output...
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Chapter 5 Notes - Chapter 5: The Competitive Firm Relations...

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