Micro Chap. 7

The extra cost required to produce 1 extra unit of output/The marginal cost of production is the additional cost incurred in producing 1 extra unit of output.

Total cost divided by the number of units produced./Average cost = total cost : output (TC:q = ATC)

1. When marginal cost is below average cost, it is pulling average cost down. 2. WhenMC is aboveATC, it is pulling upATC . 3. WhenMC just equalsATC, ATC is constant. At the bottom of a U-shapedATC, MC ATC minimum ATC / To summarize: In terms of our cost curves, if the MC curve is below theATC curve, theATC curve must be falling. By contrast, ifMC is aboveATC,ATC is rising. Finally, whenMC is just equal toATC, theATC curve is f at. The ATC curve is always pierced at its minimum point by a rising MC curve.

In the short run, when factors such as capital are f xed, variable factors tend to show an initial phase of increasing marginal product followed by diminishing marginal product. The corresponding cost curves show an initial phase of declining marginal costs, followed by increasingMC after diminishing returns have set in.

the ratio of the marginal product of an input to its price is equal for all inputs./To produce a given level of output at least cost, a f rm should buy inputs until it has equalized the marginal product per dollar spent on each input. This implies that à marginal product of L : Price L = Marginal product of A : price of A = …

If the price of one factor falls while all other factor prices remain the same, f rms will prof t by substituting the now-cheaper factor for the other factors until the marginal products per dollar are equal for all inputs.

Net income (or prof t) = total revenue - total expenses

Depreciation measures the annual cost of a capital input that a company actually owns itself.

A statement of firms financial position as of a given date, shewing assets equal to the sum of liabilities and net worth./The income statement measures the f ows into and out of the f rm, while the balance sheet measures the stocks of assets and liabilities at the end of the accounting year / Total assets = total liabilities + net worth / Net worth = assets – liabilities /1. The income statement shows the f ow of sales, cost, and revenue over the year or accounting period. It measures the f ow of dollars into and out of the f rm over a specif ed period of time. / 2. The balance sheet indicates an instantaneous f nancial picture or snapshot. It is like a measure of the stock of water in a lake. The major items are assets, liabilities, and net worth.

The value of the next best use for an economic good./Decisions have opportunity costs because choosing one thing in a world of scarcity means giving up something else. Theopportunity cost is the value of the most valuable good or service forgone

Economic costs include, in addition to explicit money outlays, those opportunity costs incurred because resources can be used in alternative ways. All costs including opportunity costs.

A statement showing revenues, costs, and profits incuqeq over a given time period

A physical property or intangible right that has economic value.

Debts or financial obligations owed to other firms or persons.

Total assets minus total liabilities.

aepresents the level of a variable.

A variable that represents change per unit of time.