Chapter 13 Industrial organization the study of how firms decisions about prices and quantities depend on the market conditions they face Profit Total revenue Total cost o Profit amount received for sales cost of products used o Total revenue quantity of output x price output is sold Explicit costs vs implicit costs o Explicit costs input costs that require an outlay of money o Implicit costs does not require an outlay of money Economist vs accountant o Economist Studies explicit and implicit costs Views forgone interest income given up as a cost of the business o Accountant Studies explicit costs only for it Does not view forgone interest income because no money flows out of the business to pay Economic profit total revenue total cost including explicit and implicit Accounting profit total revenue total explicit cost Production function relationship between quantity of inputs used to make a good and the quantity of output of that good Marginal product the increase in output that arises from an additional unit of output Diminishing marginal product the property whereby the marginal product of an input declines as the quantity of the input increases Fixed costs costs that do not vary with the quantity of output produced Variable costs costs that vary with the quantity of output produced Total cost fixed costs variable costs Average total cost total cost the quantity of output Average fixed cost cost quantity of output Average variable cost variable cost quantity of output Marginal cost the increase in total cost that arises from an extra unit of production Average total cost total cost quantity o ATC TC Q o Average total cost tells us the cost of a typical unit of output if total cost is divided evenly over all Marginal cost Change in total cost Change in quantity the units produced o MC TC Q output o Marginal cost tells us the increase in total cost that arises from producing an additional unit of Efficient scale the quantity of output that minimizes average total cost Average Total Cost in the Short and Long Runs o Because fixed costs are variable in the long run the average total cost curve in the short run differs from the average total cost curve in the long run Economies of scale the property whereby long run average total cost falls as the quantity of output Diseconomies of scale the property whereby long run average total cost rises as the quantity of output increases increases Constant returns to scale the property whereby long run average total cost stays the same as the quantity of output changes
View Full Document
Unlocking...