Unit III: Production Costs and Perfect Competition

Unit IIb: Production Costs and Perfect Competition Study Guide

Types of Costs Total Revenue= Explicit Costs= Implicit Costs= Economic Costs= Economic Profit= Accounting Profit= Normal Profit= Short-Run Production Total Product-

Marginal Product-

Average Product-

Law of Diminishing Marginal Returns-

TC, TFC, TVC Short-Run Production Costs Fixed Costs (FC)- AFC= Variable Costs (VC)- AVC= Total Costs(TC)- ATC= Marginal Costs-

Long-Run Production Costs Long-Run ATC Curve ATC, AVC, AFC, MC

Economies of Scale- Diseconomies of Scale- Pure Competition Characteristics-     Marginal Revenue- Profit Maximizing Rule- Shut Down Rule- Location of Short Run Supply Curve- Break Even Point- Productive Efficiency- Allocative Efficiency- Profit Maximization in the Short-Run (Making Profit) Industry Firm

Profit Maximization in the Long-Run (Long-Run Equilibrium) Industry Firm

Reestablishing Long-Run Equilibrium If price increases, profits are being made and… If price decreases, losses are being made and…