Short-Run Production Costs
What does ATC stand for?
Average Total Cost
How is the “Long-Run” defined in AP Microeconomics?
When all resources are variable
How is total revenue different from accounting profit
Total revenue is the total amount made, while accounting profit factors in the costs as well as the money made.
When should a firm shut down?
When their AVC > MR
What is the Profit Maximizing Rule?
MR = MC
AVC + AFC = ?
ATC
If you double all your inputs and output more than doubles, what do you have?
Increasing Returns to Scale
Total revenue is the total amount made, while accounting profit factors in the costs as well as the money made.
Total Revenue - Explicit Costs
At 75 units a perfectly competitive firm has Total Fixed Costs of $400 and Total Variable Costs of $900. What is the firm’s AVC at 75 units of production?
$900/75 = $12
In perfect competition, firms are price ____
Takers
What is the marginal cost of producing the 3rd unit
Output: Total Cost:
0 13
1 20
2 25
3 28
3
In a pizza shop if the amount of ovens to make the pizza is fixed, is the pizza shop in the short-run or the long-run?
Short Run
What is the Economic Profit Formula?
Total Revenue - Explicit Costs - Implicit Costs
If ATC = $15, MR = $12, and AFC = $5, should the firm stay open or shut down in the short-run?
Stay Open
What is the acronym for the demand curve in perfect competition?
MR = D = AR = P (Marginal Revenue = Demand = Average Revenue = Price)
What does the space between ATC and AVC on the graph represent?
AFC
What techniques are used to achieve economies of scale?
Mass Production Techniques
Joe left his job as a construction worker earning $16,000/month to open a pizza shop. He sold 4,000 pizzas for $9 each. His rent is $2,000 and all his other expenses are $18,000. What is Joe’s economic profit?
$36,000 - $16,000 - $2,000 - $18,000 = $0
The short-run supply curve is what on a perfect competition graph?
The MC curve above the minimum point of the AVC curve
What are the 3 market structures apart from perfect competition?
Monopolistic Competition, Oligopoly, and Monopoly
What is the missing AVC for the following table?
TP TC MC AVC
0 100 - -
1 110 10 10
2 116 6 ?
8
What is it called when the long-run average total cost is as low as it can get?
Constant Returns to Scale
Frank left his job at a printing company earning $50,000/year to open his own printing company. He made $85,000 in total revenue after his first year. His total costs for his own printing company are $30,000 per year. Should Frank continue at his own printing business or go back to the previous printing company?
Economic Profit > $0, so he should stay at his own business.
A burger restaurant in a perfectly competitive market has an average revenue of $40, an AVC of $15, and an AFC of $20. Should this burger restaurant stay open or shut down in the short-run and what will happen in the long-run in the burger restaurant market?
ATC = $35, so the burger restaurant should stay open. Since this burger restaurant is making economic profit, in the long run more firms will join the market and price will decrease bringing the burger restaurant market to long-run equilibrium.
A profit-maximizing firm is producing good X in a perfectly competitive market. If the government puts a lump-sum tax on this firm what will happen to the firm’s output?
The firm’s output will not change because a lump-sum tax does not affect MR or MC.