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increasing marginal returns
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the more resources you add leads to greater output of production
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diminishing marginal returns
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add more resources leads to less output of productivity
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fixed costs
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costs that remain constant as output changes
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variable costs
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costs that vary with the quantity of output produced
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total cost
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the sum of fixed and variable costs; FC + VC = TC
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average cost
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the total cost divided by the quantity produced
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marginal cost
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Extra cost of producing one additional unit of production.
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marginal revenue
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the change in total revenue from an additional unit sold
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Marginal and Total Product
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the added production of hiring one extra worker
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short run analysis
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not enough time to change capacity and plant size to increase output
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Long-Run Analysis
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you have enough time to meet capacity or plant size to increase output
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income effect
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price increases meaning less purchasing power; meaning income is lower to buy what you want
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subsitution effect
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price of product increases so you look for something to replace it that has equal value and satisfaction
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normal profit
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Marginal Revenue = marginal cost
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economic profit
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marginal revenue > marginal cost
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Negative profit (loss)
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Marginal revenue < Marginal cost
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Marginal Revenue Product
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added revenue by hiring one extra worker based on there output of productivity
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marginal wage cost
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the added cost by hiring a extra worker based on there output of productivity
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Elasticity
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The ability of a material to bounce back after being disturbed
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Utility
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personal idea or value that influences consumers buying behavior
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marginal
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Added or Extra
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marginal utility
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satisfaction by consuming one or more units of a product or service
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Big Mac example
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as consumption increases marginal utility decreases
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law of diminishing marginal utility
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marginal utility decreases and extra consumption is unnecessary (non-satisfying); the more you consume of a product that lessens its value
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consumers disincentive
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MU<P (marginal utility less than price)
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consumer's incentive
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MU>P (marginal utility greater than price)
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elasticity of demand
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a measure of how consumers react to a change in price
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elasticity of supply
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a measure of the way quantity supplied reacts to a change in price
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necessities
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with fewer substitutes are inelastic
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luxuries
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with many close substitutes are more elastic
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substitute
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preform similar function relative to another product; increase P of one will increase D of other
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market
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a group of buyers and sellers of a good or service in certain geographical areas; Scurve + Dcurve
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demand
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the relationship showing the quantity of a product or service that consumers are willing and able to purchase each price in a set of prices
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Determinants of Demand
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1. taste 2. population 3. income 4. price of relative products 5. expected future prices
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supply
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the quantity of a good or service that businesses are willing and able to provide
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Determents of Supply
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1. number of sellers 2. cost of production 3. prices of related products 4. expected future prices
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