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CH. 6 Section 1 and 2 Notes

by: Naomi Sterling

CH. 6 Section 1 and 2 Notes ECO 211

Marketplace > University of Miami > Economcs > ECO 211 > CH 6 Section 1 and 2 Notes
Naomi Sterling
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About this Document

Econ 201 section 1 and 2 notes of Chapter 6
Introductory Microeconomics
Leila Farivar
Class Notes
Notes week econ economics definition study guide chapter 6 section 1 2




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This 3 page Class Notes was uploaded by Naomi Sterling on Saturday February 27, 2016. The Class Notes belongs to ECO 211 at University of Miami taught by Leila Farivar in Winter 2016. Since its upload, it has received 26 views. For similar materials see Introductory Microeconomics in Economcs at University of Miami.


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Date Created: 02/27/16
Sellers in a Perfectly Competitive Market 02/26/2016 ▯ Three conditions perfectly characterize competitive markets:  No buyer or seller is big enough to influence the market price  Sellers in the market produce identical goods  There is free entry and exit in the market ▯ ▯ Sellers are price takers in that they can sell as much as they want at the market price. ▯ ▯ The combined effect of many seller’s decisions will affect the market price. ▯ ▯ ▯ “How do sellers decide what and how much to produce?” ▯ ▯ Three elements of the seller’s problem:  Making the goods  The cost of doing business  The rewards of doing business ▯ ▯ Making the Goods: How inputs are turned into outputs  Firm: any business entity that produces and sells goods or services  Production: the process by which the transformation of inputs to outputs occurs o The relationship between the quantity of inputs used and the quantity of outputs produces is called the production function  Physical capital: any good, including machines and buildings used for production  Short run: a period of time when only some of a firm’s inputs can be varied  Long run: period of time when all of a firm’s inputs can be varied  Fixed factor of production: an input that cannot be changed in the short run (physical capital)  Variable factor of production: an input that can be changed in the short run (labor)  Marginal product: the change in total output associated with using one more unit of input  Specialization: the result of workers developing a certain skill set in order to increase total productivity  Law of diminishing returns: states that successive increases in inputs eventually lead to less additional output ▯ ▯ The Cost of Doing Business: Introducing Cost Curves  Cost of Production: what a firm must pay for its inputs o Total cost: the sum of variable and fixed costs o Variable cost: cost of variable factors of production, which change along with a firm’s output o Fixed cost: cost of fixed factors of production, which a firm must pay even if it produces zero output  Average total cost: total cost divided by the total output  Total Cost/Q= Variable cost/Q + Fixed cost/Q  Average variable cost (AVC): total variable cost divided by total output  Average fixed cost (AFC): total fixed cost divided by total output  Marginal cost: change in total cost associated with producing one more unit of output  Marginal cost= change in total cost/ change in output  Marginal cost and marginal product are inversely related – as one increases the other decreases ▯ ▯ The Rewards of Doing Business: Introducing Revenue Curves  Revenue: the amount of money the firm brings in from the sale of its outputs  Revenue= price x quantity  The overarching goal of the seller is to maximize net benefits, or profits  Marginal revenue: the change in total revenue associated with producing one more unit or output ▯ ▯ Putting It All Together: Using the Three Components to Do the Best You Can  Profit: revenue – cost  Firms should expand production until MARGINAL REVENUE=MARGINAL COST  Computing level of profit at a point: o (price-ATC) x quantity  Accounting profits: equal to total revenue minus explicit costs  Economic profits: equal to total revenue minus both explicit and implicit costs ▯


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