Marginal Product
additional output we receive by adding just one more input
change in output / change in input
What is TR? What is TC? Profit = ?
TR: total revenue = the amount the firm receives from the sale of goods and services
TC: total cost = the amount a firm spends in order to produce those goods & services
Profit = TR - TC
What are VC, FC, & TC?
VC: variable costs = costs directly related with the rate of output (wages, electric, ingredients)
FC: fixed costs = costs that do not vary w/ output (rent, insurance)
TC: total costs = FC + VC
4 conditions of a competitive market?
many buyers & sellers
similar (even identical) goods
free entry & exit
firms are price takers
What is MR?
marginal revenue: change in total revenue by selling one additional unit of output (Q)
MR = change in TR / change in Q
competitive firm --> MR = P
What is MPL? Forumula?
MPL = marginal product of labor
change in quantity / change in labor
Explicit Costs
tangible expenses
bills to pay
ex: wages, insurance, food ingredients, etc.
What are ATC, AVC, & AFC?
ATC: average total cost = total cost / # of units produced
AVC: average variable cost = total variable cost / # of units produced
AFC: average fixed cost = total fixed cost / # of units product
Profit Maximizing Rule is....
MR = MC
if MR > MC: firm can increase profits by producing more Q
if MR < MC: firm has produced too much Q & profits are not being maximized
What is MC?
MC: marginal cost --> the additional cost of producing 1 unit
MC = change in TC / change in Q
What is MPK? Formula?
marginal product of capital
change in quantity / change in capital
Implicit Costs
opportunity cost of doing business
opportunity cost of capital: if buy a franchise, how else could you have spent the $?
opportunity cost of the owner's time above regular salary: how much could they get paid somewhere else
What are TVC, TFC, & TC?
TVC: total variable costs
TFC: total variable costs
TC: total costs = TFC + TVC
How do you calculate Profit? How do you calculate change in profit?
Profit = TR - TC
Change in Profit = MR - MC
Graph w/ MC, ATC, & MR: Where is profit? Where is total revenue? Where is total cost?
pull up from slides or study guide
profit: in rectangle made by dashed lines
TR = p * q
TC = ATC * q
Diminishing Marginal Product: what is it? how does it effect marginal product?
successive increases in an input will eventually cause output to increase at a slower rate --> think about "too many cooks in the kitchen"
= negative marginal product
Accounting Profit vs. Economic Profit
Accounting Profit = revenue - cost (explicit)
Economic Profit = revenue - "all costs" (explicit + implicit)
What is MC?
MC: marginal cost = increase in total cost that occurs from producing an additional output
MC = change in TC / change in output
What is the profit formula?
pie symbol = q * (P - ATC)
profit = units sold * average profit per unit
Inputs & Outputs of Production
Inputs: resources used in the production process to create things (factors of production) --> labor (L) & capital (K) & sometimes material (M)
Outputs: the product the firm creates using the inputs