Microeconomics Ch 6, 7, 8, 9

the limits imposed on household choices by income, wealth, and product prices

-the satisfaction a product yields
-whether an item is preferable or not depends on how much utility or satisfaction it yields relative to its alternatives
-it is impossible to measure utility
-impossible to compare the utilities of different people
-utility helps to better understand the process of choice

the additional utility gained by the consumption or use of one more unit of a good or service

the total amount of satisfaction obtained from consumption of a good or service

the more of any one good consumed in a given period, the less satisfaction (utility) generated by consuming each additional (marginal) unit of the same good

-MUx/MUy
-the ratio at which a household is willing to substitute X for Y
-we assume a diminishing marginal rate of substitution (as more of X and less of Y are consumed, MUx/MUy declines, as you consume more X, X becomes less valuable in terms of units of Y)
-negative of the slope (which is negative, making it positive) of the indifference curve
-the rate at which a consumer is willing to trade one good for another

-a set of points, each point representing a combination of goods x and y, all of which yield the same total utility

-equating the ratio of the marginal utility of a good to its price for all goods
-MUx/Px=MUy/Py

-the process by which inputs are combined, transformed, and turned into outputs
-taking inputs and making outputs

-an organization that comes into being when a person or a group of people decides to produce a good or service to meet a perceived demand
-exist to make a profit

the difference between total revenue and total cost

the amount received from the sale of the product

-includes out-of-pocket costs (explicit/ accounting costs) and opportunity costs of all inputs (implicit costs), implicit costs include normal rate of return on capital

profit that accounts for both explicit and implicit costs (same as profit)

the annual flow of net income generated by an investment expressed as a percentage of the goal investment

-a rate of return on capital that is just sufficient to keep owners and investors satisfied
-nearly the same as the interest rate on risk-free government bonds

the period of time for which 2 conditions hold (1) the firm is operating under a fixed scale (fixed factor) of production (2) firms can neither enter nor exit an industry

a time during which some factor locks a firm into their current scale of operations

-the period of time for which there are no fixed factors of production
-firms can increase or decrease the scale of operation, and new firms can enter and exiting firms can exit the industry

the production method that minimizes cost for a given level of output

a numerical or mathematical expression of a relationship between inputs and outputs

-the additional output that can be produced by adding one more unit of a specific input, ceteris paribus
-the additional output from one more input

-when additional units of a variable input are added to fixed inputs, after a certain point, the marginal product of the variable input declines (eventually marginal product has to be getting smaller)
-diminishing marginal product begins to show up when more and more units of a variable input are added to a fixed input, such as the scale of a plant

-the average amount produced by each unit of a variable factor of production
-output per worker
-not the same as the marginal product

-any cost that does not depend on the firm's level of output
-these costs are incurred even if the firm is producing nothing
-these costs do not exist in the long run

a cost that depends on the level of production (output) chosen

the total of all costs that do not change with output even if output is zero

-total fixed cost divided by the number of units of output
-a per unit measure of fixed costs

-the process of dividing total fixed costs by more units of output
-average fixed cost declines as quantity rises

the total of all costs that vary with output in the short run

a graph that shows the relationship between total variable cost and the level of a firm's output

-the increase in total cost that results from producing 1 more unit of output
-reflects changes in variable cost and total cost

total variable cost divided by the number of units of output

total cost divided by the number of units of output

an industry structure in which there are many firms, each small relative to the industry, producing identical products and in which no firm is large enough to have any control over prices, new firms can enter and old firms can exit

products that are identical and indistinguishable from one another

-the additional revenue that a firm takes in when it increases output by one additional unit
-in perfect competition P=MR

the situation in which a firm is earning exactly a normal rate of return

-the lowest point on the average variable cost curve
-when price falls below the minimum point on AVC, total revenue is insufficient to cover variable costs and the firm will shut down and bear losses equal to fixed costs
-at all prices above this shutdown point, the MC curve shows the profit-maximizing level of output
-at all prices below this point, optimal short-run output is zero
-this is the exception to P=MC, if price is so low that you're not covering the AVC, you will shut down

the sum of the marginal cost curves (above AVC) of all the firms in an industry

-an increase in a firm's scale of production leads to lower costs per unit produced
-ex: if a firm doubled or tripled its inputs it would more than double or triple its outputs
-increase in inputs= increase in output
-in some cases when price of inputs do not change with output levels, as output rises average cost of production falls

-an increase in a firm's scale of production has no effect on costs per unit produced
-the quantitative relationship between input and output stays constant when output is increased
-ex: if a firm doubles inputs it doubles outputs

-an increase in a firm's scale of production leads to higher costs per unit produced

-shows the different scales at which it can choose to operate in the long run
-a given point on the LRAC tells us the average cost of producing the associated level of output
-when the firm experiences economies of scale its LRAC will decline with output

the scale of plant that minimizes long-run average cost

the smallest size at which long-run average cost is at its minimum