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consumption bundle
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A set of goods or services a consumer considers purchasing.
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utility
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A measure of how satisfied a consumer is.
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utility function
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A mathematical function that describes the relationship between what consumers actually consume and their level of well-being.
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marginal utility
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The additional utility a consumer receives from an additional unit of a good or service.
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welfare economics
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The area of economics concerned with the economic well-being of society as a whole.
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indifferent
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The special case in which a consumer derives the same utility level from each of two or more consumption bundles.
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indifference curve
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A mathematical representation of the combination of all the different consumption bundles that provide a consumer with the same utility. Marginal rate of sub
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marginal rate of substitution
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The rate at which a consumer is willing to trade off one good (the good on the horizontal axis X) for another (the good on the vertical axis Y) and still be left equally well off.
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perfect substitute
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A good that a consumer can trade for another good, in fixed units, and receive the same level of utility.
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perfect complement
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A good from which the consumer receives utility dependent on its being used in a fixed proportion with another good.
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bad
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A product that provides a consumer with negative utility.
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budget constraint
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A curve that describes the entire set of consumption bundles a consumer can purchase when spending all income.
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normal good
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A good for which consumption rises when income rises.
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inferior good
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A good for which consumption decreases when income rises.
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income elasticity
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The percentage change in the quantity consumed of a good in response to a 1% change in income.
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Engel curve
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A curve that shows the relationship between the quantity of a good consumed and a consumer’s income.
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production function
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A mathematical relationship that describes how much output can be made from different combinations of inputs.
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short run
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In production economics, the period of time during which one or more inputs into production cannot be changed.
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fixed inputs
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inputs that cannot be changed in the short run.
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variable inputs
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Inputs that can be changed in the short run (resources/labor)
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long run
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In production economics, the period of time during which all inputs into production are fully adjustable.
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marginal product
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The additional output that a firm can produce by using an additional unit of an input (holding use of the other input constant).
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diminishing marginal product
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A feature of the production function; as a firm hires additional units of a given input, the marginal product of that input falls.
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average product
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The quantity of output produced per unit of input.
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cost minimization
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A firm’s goal of producing a specific quantity of output at minimum cost.
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isoquant
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A curve representing all the combinations of inputs that allow a firm to make a particular quantity of output. convex towards orgin
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marginal rate of technical substitution
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The rate at which the firm can trade input X for input Y, holding output constant. Proudction function
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isocost line
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A curve that shows all of the input combinations that yield the same cost.
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opportunity cost
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The value of what a producer gives up by using an input.
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fixed cost
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The cost of the firm’s fixed inputs, independent of the quantity of the firm’s output.
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variable cost
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The cost of inputs that vary with the quantity of the firm’s output.
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total cost
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The sum of a firm’s fixed and variable costs.
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average fixed cost (AFC)
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A firm’s fixed cost per unit of output.
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average variable cost
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A firm’s variable cost per unit of output.
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average total cost
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A firm’s total cost per unit of output.
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marginal cost
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The cost of producing an additional unit of output.
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economies of scale
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Total cost rises at a slower rate than output rises.
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diseconomies of scale
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Total cost rises at a faster rate than output rises.
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constant economies of scale
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Total cost rises at the same rate as output rises.
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economies of scope
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The simultaneous production of multiple products at a lower cost than if a firm made each product separately.
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LRVC
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Q3
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LRFC
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Doesn't exist
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LRATC
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Divide by Q
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LRMC
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take derivative of LRVC
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LRATC minimizes
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LRATC = LRMC
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SRVC
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Q^2 + Q
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SRATC
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Divide by Q (Q + 30 + 1800/Q)
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SRAVC
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8Q + 30
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SRAFC
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1800/Q
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SRMC
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Take derivative of 8q^2 + 30q
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Minimizes SRATC
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set SRATC = SRMC
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