Exam 3 Review Session
Exam 3 Review Session ECON 1010
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This 8 page Study Guide was uploaded by Emma Notetaker on Sunday November 15, 2015. The Study Guide belongs to ECON 1010 at Tulane University taught by Toni Weiss in Summer 2015. Since its upload, it has received 150 views. For similar materials see Intro to Microeconomics in Economcs at Tulane University.
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Date Created: 11/15/15
Exam 3 111515 327 PM Production 0 short run period of time in which amount of at least one factor of production is fixed AND there is not enough time to enter or exit the industry 0 at any given point in time you are in the short run 0 long run period of time in which the amounts of all factors of production can be changed and there is enough time to enter or exit the industry 0 never quite there 0 long and short runs vary per company or firm Apple longer time to disappear YEARS vs lemonade stand very short long run afternoon 0 fixed factors of production difficult to change large machines warehouses etc 0 CAN be changed in the long run 0 variable factors of production easy to change 0 for our purposes let only labor vary 0 total product TP the total amount that can be produced with various amounts of labor marginal product MP extra amount that can be produced with one more unit of labor unit of labor can be person time etc 0 how much output does EACH new person make not per worker looking at LAST worker 0 MP ATP Alabor 0 average product amount on average that each worker can produce 0 AP TPL 0 law of diminishing marginal productreturns o the more of a variable in put is added to fixed inputs the more the productivity will DECREASE 0 NOT due to skill set but due to constraints 0 total output rises more slowly as additional workers are added 0 assumptions ONLY labor is variable all else fixed all labor is identical equal skill levels the labor market is perfectly competitive marginal product is DERIVATIVE of total product MP gt 0 and increasing TP increases at increasing rate MP gt 0 and decreasing TP increases at decreasing rate MP lt 0 and increasing TP decreases at increasing rate 0 MP lt 0 and decreasing TP decreases at decreasing rate 0 marginal product and average product relationship 0 MP gt AP 9 AP increases 0 MP lt AP 9 AP decreases 0 ex need grades higher than average to raise GPA 0 average and marginal product ALWAYS start at the same place because you initially divide by one o graphs 0 TP on separate graph than AP and MP because of separate scales TP MUST start at 0 AP and MP on same graph Qtime on Y axis labor on X axis 0 read the graphs from bottomup changing angle from how much output can be produced with various labor amountsquot to how much does it cost to produce various amounts of outputquot 0 to produce more you need more labor because we assume that labor is the only variable only thing that can vary is the amount of workers 0 we also assume that all workers are as efficient as possible multiple ways to divide total costs of production 0 fixed vs variable costs 0 Fixed costs DO NOT VARY with output 0 as you product more nothing changes 0 cost of fixed resources 0 cost of producing nothing 0 ex rent no matter if you re there or not will still have to pay 0 variable costs VARY with output 0 labor costs 9 WAGES 0 ex electricity pay more if you use more OR explicit vs implicit costs explicit costs money that ACTUALLY changes hands GOO GOO 0 ex salary wages implicit costs more like opportunity costs 0 no actual money changes hands 0 incurred in 3 ways 1 loss of wages give up old job to open new business 2 loss of interest earned on money 3 rent on capital if you use your own capital you re missing out on rent opportunity profits 0 accounting profit total revenue total explicit costs 0 economic profit total revenue total explicit total implicit 0 less likely to have economic profit because this recognizes opportunity and implicit costs 0 ex Myron worked at a factory earning 20000year He quit his job to open a bumper sticker business This earned 60000 in sales revenue and incurred 30000 in expenses What is economic profit 0 600003000020000 10000 0 zero economic profit is called a normal profit 0 you could still be making a large accounting profit 0 as much has you would be making with nextbest option total fixed costs don t vary with output 0 horizontal line on graph 0 cost of producing nothing 0 top right graph marginal costs cost of producing one more unit of output 0 MC ATC ATP ATC AQ notes on reading graphsclicker questions 0 start with bottom left graph MP and AP 0 MP over AP AP is rising 0 top left graph TP integral of MP 0 decreases when MP hits 0 0 starts at 0 always 0 bottom right MC AVC ATC AFC o if AP increasing AVC decreasing and vice versa 0 AVC intersects MC where AP at max AVC at minimum when AP maximum 0 costs CANNOT exceed maximum total product 0 ATC approaches AVC with higher quantity top right TFC TVC and TC 0 TFC horizontal line where total costs start 0 TC and TVC parallel TVC starts at 0 AVC TVCQ ATC TCQ AVC AFC AFC TFCQ when TFC stays the same AFC decreases with every increase in Q at the beginning mp increases so each unit of additional labor is increasing productivity 0 when MP is increasing marginal cost decreases because it is cheaper to produce each additional unit 0 when MP is decreasing MC increased until MP 0 then MP STOPS why when marginal product is decreasing that means that each additional unit of labor is producing less output That means that although you are producing more it costs more fir each addition unit it is less efficient variables costs are 0 when firm s shortrun output is 0 0 because variable costs labor costs and there is no labor with no production marginal cost is equal to the change in the total variable cost divided by the change in output because total fixed costs will stay the same total cost DOES NOT EQUAL the sum of the marginal costs 0 because we also need to factor in fixed costs total variable costs sum of all marginal costs when TP increases at increasing rate TVC increases at decreasing rate as does total costs when AP increases at decreasing rate TVC and TC increase at increasing rate ATC reaches minimum AFTER AVC due to fixed costs 0 when AVC decreases AP increases when AVC increases MP is LESS than AP o with marginal profit curves and marginal cost curves online NO DIAGONAL LINES go down or up on the axis profit maximization economic profit 0 profit TR TC 0 TR profit TC 0 the amount that a firm takes in from product sales 0 firms earning profits will produce to the right of the minimum point on the ATC curve 0 industriesmarkets collection of businesses that sell a smiiar goodservice scale 0 extreme perfect competition 9 o monopolistic competition 9 o oligopoly 9 o extreme monopoly o perfect competition 0 1 many buyers many sellers 0 2 homogenous product exactly the same 0 3 no one buyer of seller has any market power no ONE person can influence the price Walmart has LOTS of power can go directly to Proctor and Gamble and influence prices 4 all buyers and sellers have the same information 0 points 13 determine that the seller is a PRICE TAKER must sell at the market price 0 if perfectly elastic demand CANNOT raise the prices will have 0 business profit maximization how many units of output should be produced and sold 0 firm needs to product when TR TC is as LARGE as possible want TC to be UNDER TR 0 profit maximized when MR MC past this point each unit costs more to produce than you will get back 0 firm always produces on the decreasing and positive part of the MP curve 0 at point of profit maximization profit MCATCq tota profit Q P ATC marginal revenue additional revenue from selling one more unit 0 MR ATR AQ MR PRICE MR curve is right on top of perfectly elastic demand curve 0 BUT they are DIFFERENT curves would be separate if not perfectly elastic demand a perfectly competitive firm employing ONE variable labor will hire labor to the point where the wage equals the MR product of labor without hiring any labor for which the wage is greater than the marginal revenue product of labor if the profit is negative a firm should keep doing what it is doing 0 between 1 and q they lose profit they d move past profit max point and MR would go down 111515 327 PM 111515 327 PM
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