Microeconomics Study Guide Test 3

Microeconomics Study Guide Test 3 - Microeconomics Study...

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Microeconomics Study Guide Test 3 Marginal Cost : increase in total cost from an additional unit of production (∆VC/∆Q) Marginal Product : increase in output from an additional unit of input Diminishing Marginal Product : MP of an input declines as Q of inputs increases Efficient Scale : minimizes ATC, where MC crosses ATC Economies Of Scale : LR ATC falls as Q of output increases (more made = more profit) Diseconomies Of Scale : LR ATC rises as Q of output increases - Slope of production function is change in output from a change in a unit of input. If diminishing, the slope of the function gets flatter as more inputs are used. - In long run a firm experiences economies of scale, constant returns to scale, and diseconomies of scale as the scale of production expands. - Wages paid to factory labor is a VC in the short run; in long run all costs are VC. Competitive Market : maximizes profit when MR=MC - In long run firms enter and exit the market so economic profit = 0 ; P=ATC, thus the long run market supply curve is more elastic than the short run.
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