ECO101H1 Study Guide - Midterm Guide: Average Variable Cost, Marginal Revenue, Marginal Cost

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14 Jan 2011
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PRODUCERS IN THE SHORT RUN
Short Run (SR)
quantities of at least one of the firm!s resources is fixed
Long Run (LR)
quantities of all of the firm!s resources can be varied, but its technology is fixed
Very Long Run
quantities of all of the firm!s resources and its technology can be varied
economic profits = total revenues - opportunity costs
Total Product (TP)
total output produced for various levels of labour
Marginal Product (MP)
increase in total product resulting from a one-unit increase in labour
slope of the TP curve ( change of TP / change of L )
Average Product (AP)
total product per unit of labour (TP/L)
Total Cost
= total fixed cost (independent of the level of output) + total variable cost (increases as
output increases)
Marginal Cost (MC)
increase in total cost resulting from a one-unit increase in output
slope of the TV curve (change in TC / change in Q)
Average Total Cost (ATC)
TC per unit of output (TC/Q)
ATC=AVC (average variable cost) + AFC (average fixed cost)
PRODUCERS IN THE LONG RUN
all factors are variable
Long Run Average Cost Curve
traces out the lowest attainable average total cost at each output when both capital and
labour inputs can be varied
Profit maximization is equivalent to cost minimization.
firms choose the combination of capital and labour such that MPk/Pk=MPl/Pl
ECO100 CARR TERM TEST 2 CONCEPTS
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Document Summary

Short run (sr) quantities of at least one of the rms resources is xed. Long run (lr) quantities of all of the rms resources can be varied, but its technology is xed. Very long run quantities of all of the rms resources and its technology can be varied economic pro ts = total revenues - opportunity costs. Total product (tp) total output produced for various levels of labour. Marginal product (mp) increase in total product resulting from a one-unit increase in labour slope of the tp curve ( change of tp / change of l ) Average product (ap) total product per unit of labour (tp/l) = total xed cost (independent of the level of output) + total variable cost (increases as output increases) Marginal cost (mc) increase in total cost resulting from a one-unit increase in output slope of the tv curve (change in tc / change in q) Atc=avc (average variable cost) + afc (average xed cost)

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