48 terms

Supply Theory


Terms in this set (...)

Capital Good
Durable goods that must be used in the process of production, such as, land, buildings, equipment, vehicles, tools, computers, and so forth
Labor (L)
The number of workers employed per day or number of hours working used
Long Run
Amount of time needed to make all production inputs variable
Opportunity Cost
Cost associated with opportunities that are forgone when a firm's resources are not put to their best alternative use
The most important fact about labor is
Highly flexible
Economic Cost
Cost to a firm of utilizing economic resources in production, including opportunity cost
Short run
To a period of time in which the quantities of one or more factors of one or more production factors cannot be changed
Production Function
Indicates the highest output quantity that a firm can produce for every specified combination of inputs
Accounting Cost
Compares actual expenses plus deprecation charges for capital equipment
Factors of Production
Anything that the firms must use as a part of the production process ( Labor, Material, Capital)
Total Revenue
How many units have sold multiplied by the price charged for each unit, and then deduct the total cost of production
Marginal Product
Additional output produced as an input is increased by one unit
Average Product
Output per unit of a a particular input
Sunk Cost
Expenditure that has been made and cannot be recovered
Total Cost
Total economic cost of production, consisting of fixed and variable cost
Fixed Cost
Cost that does not vary with the level of output and that can be eliminated only by shutting down
Variable Cost
Cost that varies as output varies
Policy of treating a one-time expenditure as an annual cost spread out over some number of years
Marginal Cost
Increase in cost resulting from the production of one extra unit of output, only includes variables. How much it will cost us to expand output by one unit
Average Total Cost
Firm's total cost divided by its level of output, average fixed cost and average variable cost
Law of Diminishing Marginal Return
Principle that as the use of an input increases with other inputs increases with other inputs fixed, the resulting additions to output will eventually decrease
Total Expenditures
The sum of the price paid for one or more products or services multiplied by the amount of each item purchased.
Marginal Rate of Technical Substitution
Amount by which the quantity of one input can be reduced when one extra unit of another input is used, so that output remains constant ( Think Isoquant)
Law of supply
the common relationship that a higher price leads to a greater quantity supplied and a lower price leads to a lower quantity supplied, while all other variables are held constant
Accounting profit
Total revenues minus explicit costs, including depreciation
Returns to Scale
Rate at which output increases as inputs are increased proportionately
Increasing Returns to Scale
Situation in which output more than doubles when all inputs double
Constant Returns to Scale
Situation in which output doubles when all inputs are doubled
Consumer Surplus
Difference between what a consumer is willing to pay for a good an the amount actually paid
Producer Surplus
Sum over all units produced nu a firm of differences between the market price of a good and the marginal cost of production
Wellfare Effects
Gains and losses to consumers and producers
Total Surplus
Is the amount by which all individuals are made better off in a market of voluntary exchanges
Situation in which the quantity supplied excess the quantity demanded
When does maximum total surplus occur?
When demand and supply are in equilibrium under conditions of perfect competition
Average Fixed Cost is always declining with?
Difference between Total revenue and Total cost
Marginal Revenue
Change in revenue resulting from a one-unit increase in output
In a perfect market, Marginal revenue is equal to?
What does a produce control in a perfect market?
Production Function, Marginal Product of Capital, Marginal Cost, Factors of production
To maximize profit ?
Marginal cost is equal to Marginal revenue , Isoquant cost and ascots lines are tangent, and wage must be equal to marginal revenue multiplied by marginal product of labor
These equation assume:
MPL / MPK = MRTS = w / r ; MPL / w = MPK / r ?
That the efficiency point, isoquant and ascots lines are tangent
Economic Rent
Amount that firms are willing to pay for an input less than a doubling of cost
In a perfect competition, when the market is at equilibrium where demand is inelastic and supply is unit elastic,
A consumer gets larger share of the total surplus than the producer
In a profit-maximizing firm, ___________ equal to the ratio between the per-worker cost of labor (w) and the per-machine cost of capital
The ratio at which cost remain the same ,ratio determined by r and w
The point at which the cost are lowest for a given quantity is which point?
is the point at which the isoquant curve is just exactly tangenct to the isocost curve
A producer cannot control
w ,r, MR
Economic Rents
In the long run, economic profits seen from monopolist