ECON 101 Study Guide - Midterm Guide: Marginal Revenue, Marginal Cost, Demand Curve

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18 Jun 2018
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MARGINAL = CHANGE
Chapter 11
ā— Labor has decreasing marginal occurrence at high rates
ā—F CA =Q
F C
ā—V CA =Q
V C
ā— OR T CA =Q
T C C AT CT = Ɨ Q
ā—otal Revenue PT = Ɨ Q
ā—otal Cost C CT =F+V
ā—CM =Ī”T C
Ī”q of output
ā—RM =Ī”Q
Ī”T R
ā—C T C @ min AT CM =A
ā—C V C@ min AV CM =A
ā—C T C when AT C is decreasingM <A
ā—C T C when AT C is increasingM >A
ā—T C V C F CA =A+A
ā—rofit P T C) QP = ( āˆ’ A
ā— Average Fixed Cost is always decreasing
ā— If Marginal Cost is below ATC Curve, brings down ATC
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ā—‹ If marginal cost is less than average total cost, then the Average Total
Cost must be decreasing
ā— Economies of Scale- ATC decreasing
ā—‹ as production increases, average cost decreases. Incentive to get bigger.
ā— Diseconomies of Scale-
ā—‹ as production decreases, average cost decreases. Incentive to get
smaller.
ā— Constant returns the scale -
ā—‹ production can either increase or decrease, and average cost stays the
same, no incentive to get bigger or smaller.
ā— If making large purchase/investment ---> long run
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ā— A firm has diminishing returns to labor (an input), but the marginal cost is always
positive
ā—‹ Each additional unit of labor will increase the total product of labor
ā— Long run -
ā—‹ the time period in which all inputs can be varied.
ā— Short run -
ā—‹ the time period in which at least one input is fixed.
ā— The profit maximizing quantity is found where Marginal Revenue intersects
Marginal Cost.
ā— The intersection between the marginal cost curve and the average total cost is
the ī€minimum average total cost.
ā— The intersection between the marginal cost curve and the average variable cost
is the ī€minimum average variable costī€.
ā— The ī€long run average total cost curveī€ envelopes all of the short run average
cost curves.
ā— The LRATC shows the cheapest possible way to produce every quantity.
ā— In the long run, its made up of a bunch of the minimum atc points
Chapter 12
ā— Under perfect competition
ā—‹ All market participants behave as price takers
ā—‹ There are many buyers and sellers
ā—‹ The product traded is homogenous
ā—‹ Free entry and exit
ā—‹ No buyer or seller has a large market share
ā— When total revenue is greater than total cost, the firm is profitable. TR > TC
ā— When total revenue is equal to total cost, the firm breaks even. TR = TC
ā— When total revenue is less than total cost, the firm incurs a loss. TR < TC
ā— When price is greater than average total cost at the profit maximizing quantity,
then the firm is profitable. P > ATC
ā— When price is equal to average total cost at the profit maximizing quantity, then
the firm breaks even. P = ATC
ā— When price is less than average total cost at the profit maximizing quantity, then
the firm incurs a loss. P < ATC
ā— In a perfectly competitive firm:
ā—‹R CĻ€ = Tāˆ’T
ā– RT =PƗQ
ā—‹RM =P
ā—‹ MR is a straight line
ā—‹ To maximize profit, firm chooses quantity where price = marginal revenue
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ECON 101 Full Course Notes
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ECON 101 Full Course Notes
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Document Summary

Labor has decreasing marginal occurrence at high rates. If marginal cost is below atc curve, brings down atc. If marginal cost is less than average total cost, then the average total. Production can either increase or decrease, and average cost stays the same, no incentive to get bigger or smaller. If making large purchase/investment ---> long run. A firm has diminishing returns to labor (an input), but the marginal cost is always positive. Each additional unit of labor will increase the total product of labor. The time period in which all inputs can be varied. The time period in which at least one input is fixed. The profit maximizing quantity is found where marginal revenue intersects. The intersection between the marginal cost curve and the average total cost is. The intersection between the marginal cost curve and the average variable cost the minimum average total cost. is the minimum average variable cost . cost curves.

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