short run
a period where at least one production input (usually capital/plant size) is fixed, and thus supply cannot fully adjust to the changes in demand.
long run
a period where all resources used in production are variable, and supply can adjust to changes in demand.
Law of diminishing marginal returns
As a firm adds an increasing amount of variable resources (labour, raw materials) to a fixed resource (capital/plant size, the additional production each new worker adds will eventually decrease.
Marginal product formula
change in output
/
variable inputs
(quantity)
average product formula
total in output
/
change in input
(quantity)
Total fixed costs
Costs that do not vary with the change in output. (Rent, electricity bills, etc)
moneys
total variable costs
Costs that vary with output changes (raw material costs, number of employees)
moneys
Average fixed cost, variable cost, total cost
= total fixed cost, variable cost, and total cost / quantity
moneys/quantity
Marginal cost
change in total cost
/
change in quantity
When is profit maximised?
When marginal revenue = marginal cost
Per-Unit Taxes
tax on each extra additional output. = variable cost, not a fixed cost
–>increases with more production
Lump-sum tax
fixed cost of tax. Fixed regardless of production levels. Only fixed cost increases
Long run costs
bunch of different short run curves strung together
Economies of scale
stage of the Long run average total cost curve where the average production cost decreases as quantity produced increases.
better machines for large scale operations
increasing returns to scale
Constant returns to scale
stage of the Long run average total cost curve where the average production cost is the same as quantity produced increases.
just add the same machines with the same costs
constant returns to scale
Diseconomies of scale
stage of the Long run average total cost curve where the average production cost is increases as quantity produced increases.
Too many machines
decreasing returns to scale
accounting profit
a company’s total revenue minus explicit costs like wages, rent, and materials
economic profit
revenue including explicit profit, but also implicit ones like opportunity costs
Where does the MP curve intersect the AP?
Maximum price of AP
Above MP would make the average go up, while below would bring it down.
Productive efficieny
when we are producing at the lowest average cost. AC meets the MC
