AP Microeconomics Test 3

Derivative

Also derivative! Because fixed costs one-time, the rest of MC comes from VC

just some notes

a method of production where a business focuses labor on a specific type of production

Economies of scale
Greater efficiency (more inventions - drop in MC)

The principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline

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A market in which there are many buyers but only one seller.

Occurs when a firm charges the maximum amount that buyers are willing to pay for each unit.

1) the goods offered for sale are all exactly the same
2) the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price

one company controls most of the market, can charge higher prices

fixed costs plus variable costs

Costs that do not vary with the quantity of output produced

costs that have already been incurred and cannot be recovered

(A sunk cost is always a fixed cost because it cannot be changed or altered. A fixed cost, however, is not always a sunk cost, because it can be stopped in the sale or return of an asset)

interest and insurance

costs that vary directly with the level of production

the cost of producing one more unit of a good

MR = MC

level of production where marginal cost is equal to marginal revenue

total cost divided by the quantity of output

sum of MC + FC / n

variable cost divided by the quantity of output

fixed cost divided by the quantity of output

the larger the output, the greater the quantity of output over which fixed cost is spread, leading to lower average fixed cost

factors that cause a producer's average cost per unit to fall as output rises

the property whereby long-run average total cost rises as the quantity of output increases

a LONG RUN concept

none!

Product differentiation and many firms - monopolistic
No product differentiation and many firms - perfect competition
No product differentiation and one firm - monopoly
Few firms, and (no) product differentiaion - oligopoly

P=MR, you increase quantity until MR=MC, price is determined by market, MR stays constant

ownership of essential resources, economies of scale, technological superiority, government-created barriers

MC = MR

a company's product sales as a percentage of total sales for that industry

Monopoly - 100

A firm will shut down if it cannot cover variable costs.

NOT the same as going out of business and exiting the industry.

Shutdown rule - as long as price is greater than minimum average variable cost, it keeps producing

average total cost

Profit = TR - TC
Profit / Q = TR/Q -TC/Q
Average Profit = Price - ATC

NO! YOU HAVE FIXED COSTS!

they will leave in the long run.

MR the same for every additional unit of output sold because they get the same price for each additional unit of output sold

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Zero economic profit!

A firm is earning a normal return on its investment—i.e., it is doing as well as it could by investing its money elsewhere.

P=ATC

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break even price

sometimes ATC is higher at profit-maximizing input and they make more profit


We also need AVC curve to see if producing at Q is even a good idea (ie if above shutdown price)

Shut down if TR < TVC OR P < AVC

-FC

shows how an individual producer's profit-maximizing output quantity depends on the market price, taking fixed cost as given

add supply curves horizontally

supply shifts right, demand shifts down, good price decreases

demand shifts right, price goes up

MC above shutdown price

AND always flatter (more elastic than SR supply curve)

producing at min of ATC

MC = MR

Maximum surplus

Supposed to be CONSUMERS getting utility

2x STEEPER CURVE FROM DEMAND CURVE

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MR and D curves are teh same

ARE THE SAME!

P>MC

a market that runs most efficiently when one large firm supplies all of the output

ATC slopes down (decreases as they produce more - high fixed costs)

Government reduces prices by setting them near equilibrium

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