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BU / Economics / EC 101 / How do you calculate implicit cost?

How do you calculate implicit cost?

How do you calculate implicit cost?

Description

School: Boston University
Department: Economics
Course: Principles of Economics: Microeconomics
Professor: Edson
Term: Fall 2016
Tags: Microeconomics
Cost: 50
Name: Microeconomics Final Study Guide
Description: Hey everyone! These notes are the condensed material from the last midterm until now. I know the final is cumulative, but though the separation of materials would be helpful to you all, as each study guide goes in-depth with examples, concepts, etc. Good Luck!!
Uploaded: 12/13/2016
7 Pages 78 Views 11 Unlocks
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Study Guide EC 101 AA Don't forget about the age old question of How do you want the relationship to fit into other areas of your life?

Review for Ch 13-15, 17

  • Total Cost: the amount a producer inputs into the production of a good

→ Goal is the maximization of total profits (π) If you want to learn more check out What two functional groups are bound to the central carbon of every free amino acid monomer?

→ π = Total Revenue (TR) - Total Cost (TC)

  • Explicit Costs: Input costs that require an outlay of money by the firm
  • Implicit Costs: Input costs that do not require an outlay of money by the firm
  • Total costs can also be represented by ...

→ Explicit Costs & Implicit Costs

  • Pro-cyclical: moves in the same direction as economic activity

→ ex: exemployment

  • Counter - Cyclical: moves in the opposite direction as economic activity

→ ex: unemployment Accounting profit: TR - explicit costs

  • Production Function: relationship between quantity of inputs used to make a good and the quantity of output that good

→  gets flatter as production rises

  • Marginal Product: increase in output that arises from an additional unit of input

→ slope of production function We also discuss several other topics like Who is the client for child and adolescent services?

→ Q = f (inputs)

  • Diminishing Marginal Product: marginal product of an input declines as the quantity of input increases
  • Total Cost Curve: gets steeper due to diminishing marginal product - producing one unit of output requires more additional units of input

L

Q

MPL=

1

10

10 MPL↗

2

21

11 MPL↗

3

33

12 MPL↗

4

44

11 MPL↘

5

54

10 MPL↘

6

63

9 MPL↘

  • Law of Diminishing Returns: If you continue to add a Variable input (L) to a fixed input (k), then at some point the marginal product of the variable input will start to decline
  • When MPL ↓, then MC↑
  • When MPL ↑, then MC↓
  • Fixed Costs: costs that do not vary with the quantity of output produced a
  • Variable Costs: costs that vary with the quantity of output produced

→ TC = F C + VC

  • Average Fixed Costs: Fixed cost divided by quantity of output (AFC)
  • Average Variable costs : Variable cost divided by quantity (AVC)
  • ATC = AVC + AFC
  • AFC always declines as Q ↑ 
  • AVC always rises as Q ↑
  • when MC > ATC, then ATC increasing
  • When MC < ATC, then ATC decreasing

  1. Economies of scale: long-run ATC falls as Q increases; increasing specialization among workers
  2. Constant Returns to Scale: long-run ATC stays the same as Q increases; also known as No Economies of Scale

  1. Diseconomies of Scale: Long-run ATC increasing coordination problems

        If you want to learn more check out How do pheromones work in attraction?

  • Competitive Market: many buyers and sellers where each buyer and seller is a price taker
  • firms can freely enter and exit the market
  • profits maximized when marginal revenue = marginal cost

Firm as a Price Taker If you want to learn more check out What is the benefit of having comparative advantage?

        

We also discuss several other topics like Who is the father of genetics?

D2 is perfectly elastic

  • The marginal cost curve is the
  • Measuring Profit
  • Profit = TR - TC = (P-ATC) x Q

        

→ At ATC1 Positive Profit because P>ATC

→ At ATC2 Negative Profit because P<ATC

→ At ATC3 Zero Profit because P=ATC

  • Shutdown: short-run decision not to produce anything because of current market decisions; firm still has to pay fixed costs

  • Exit : long-run decision to leave market firm doesn't have

Ex) Monthly Revenue

Total Revenue = 1,700 (TR)                 π =TR-TC = TR - (TFC + TVC)

Rent = 1,000         (TFC)                         Produce: π = 1,700-(1,000+ 900) = -$200

Labor Costs = 900 (TVC)                 Shut - Down: TI = 0 - $1,000 = -$1,000

→ Do not shut down because TR > TVC => 1700 > 900.

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