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Micro-Economics Ch 12-16 Principle Points-My Notes

# Micro-Economics Ch 12-16 Principle Points-My Notes - T E n...

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T .   E n g l i s h   P a g e  | 1 KEY BANK Chapters 12-16 Principle Points Chapter 12: Production & Cost Total Product V. Marginal Product o Marginal Product of Labor =the change in Total Product is divided by the increase in the quantity of labor (MPL=TP/QL) o The MP is the increase in output obtained by hiring an additional worker. o Total product curve shows the relationship between a variable input and output. o The total product Curve will become FLATTER as output increases, if there are diminishing returns to the variable input. Total Cost is Fixed cost plus Variable Cost o TC is the SUM of the Fixed and Variable costs. o Fixed Input is whose quantity cannot be changed during a particular period. o Average Variable Cost is the ratio of: variable cost to the quantity of output o Variable inputs are whose quantity can be changed during a particular period. o Total Cost is the cost of ALL the factors of production the firm uses o An Increase in the rent for the building, an insurance agent leases, increases the agents total Fixed Cost and Average Fixed cost. Average Cost and Marginal Cost o The Marginal cost curve is the Mirror image of the Marginal Product Curve. o Average Total Cost is at its minimum if MC is = to ATC o A firms MC is the: ratio of the change in total cost to the change in the quantity of output. o Average Fixed Cost curve continually DECLINES as more output is produced in the short run. Spreading Effect, Diminishing returns effect o Diminishing Returns to an input in production suggests that if a local Teacher’s Notes In Black Chapter Review Answers In Red (not bolded) Take Home Answers In Blue (bolded)

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college adds more and more custodians, the MP of Labor for the staff will : decrease over time. In other words, one additional unit of an input will increase output, but by smaller and smaller amounts. o The short-run ATC is U-shaped because at low output levels the Spreading Effect of falling AFC’s dominates the Diminishing Returns Effect, while at high output levels the reverse is true.
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