FINAL STUDY GUIDE 2

# FINAL STUDY GUIDE 2 - ECON200 Midterm II Chapters 13-17...

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ECON200 Midterm II Chapters 13-17 11/5/07 Chapter 13: The Costs of Production Total revenue the amount a firm receives for the sale of its output Total cost: the market value of the inputs a firm uses in production Profit: total revenue minus total cost Profit = total revenue – total cost Explicit costs: input costs that require an outlay of money by the firm ex. wages paid to workers Implicit costs: input costs that do not require an outlay of money by the firm ex. opportunity cost of time Economic profit: total revenue minus total cost (both explicit and implicit) Accounting profit: total revenue minus total explicit costs Production function: the relationship between the quantity of inputs used to make a good and the quantity of output of that good ex. slide 10 Marginal product: the increase in output that arises from a additional unit of input MPL= ∆Q/∆L MPL= marginal product of labor ∆Q= change in output ∆L= change in labor Diminishing marginal product: the property whereby the marginal product of an input declines as the quantity of the input increases Production function curve becomes flatter

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Fixed costs: do not vary with the quantity of output produced ex. rent, cost of equipment Variable costs: vary with the quantity produced ex. wages, materials Total cost= fixed cost + variable cost Average total cost: total cost divided by the quantity of output ATC= TC/Q Average fixed cost: fixed costs divided by the quantity of output Average variable cost: variable costs divided by the quantity of output Marginal cost: the increase in total cost that arises from an extra unit of production MC= ∆TC/∆Q Cost curves for a typical firm Rising marginal cost (diminishing marginal product) U-shaped ATC o Efficient scale: the quantity of output that minimizes ATC, bottom of U The MC curve intersects the ATC curve at its minimum
Short run ATC: some inputs are fixed ex. factories, land Long run ATC: all inputs are variable ex. firms can built more factories ATC at any Q is cost per unit using the most efficient mix of inputs for that Q Economies of scale: long run ATC falls as the quantity of output increases Increasing production allows greater specialization (workers have narrow task) More common when Q is low Diseconomies of scale: long run ATC rises as the quantity of output increases Coordination problems in large organizations (stretched management) More common when Q is high Constant returns to scale: long run ATC stays the same as the quantity of output changes Chapter 14: Firms in Competitive Markets Competitive market/perfectly competitive market: Many buyers and sellers

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The goods offered are largely the same Firms can freely enter or exit the market Buyers and sellers are “price takers”
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## This note was uploaded on 02/23/2011 for the course COMM 107 taught by Professor Gardner during the Spring '08 term at Maryland.

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FINAL STUDY GUIDE 2 - ECON200 Midterm II Chapters 13-17...

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