ECON micro 2
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Production: short-run: TC=
average cost of production-- ATC=
average variable cost: AVC=
total variable cost:TVC= (2 formulas)
average fixed cost: AFC=
- therefore, TFC=AFC•Q and TFC=TC-TVC
marginal cost: def. and formula, MC=
- additional cost incurred by producing an additional unit
- also, MC=ΔTVC/ΔQ +0
- *remember ΔTFC/ΔQ=0
average cost: AC=
law of diminishing marginal rate of return
to add an equal amount of a variable input (labor) into a fixed input (land), marginal output (marginal product, MP) (extra) will be at some point diminishing
in relation to the AVC curve, where is the ATC curve?
ATC curve always above AVC curve
explain difference between curves: TFC vs AFC
- TFC will be a constant horizontal line
- AFC will be a downward sloping curve; as Quantity ↑ the AFC ↓ and approaches zero
the extra output that can be produced by using one more unit of the input
marginal product; ex: adding one more worker to labor force
when MP goes up or down what happens to MC and profit?
- MP↑ --> MC↓ --> Profit↑
- MP↓ --> MC↑ --> Profit↓
- *also, when MPhighest --> MClowest
points that dictate break-even or shutdown?
- break-even: when profit = Average Total Cost; EP=0
- shutdown: when profit < Average Variable Cost
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