AREC 200

• What is the producer's problem?

  Maximize Profit subject to constraints
• Marginal Revenue = Marginal Costs
• Market supple moves along supply curve when its own price changes
• The market supply curve shifts when input prices, or other prices within a market change
• Elasticities and meaning

  Es>1, Then the good is elastic

  Es<1 the good is inelastic
• As time increases, elasticity increases. This is due to what?


  Time frame for firms decision making and nature of implementing technology
• What are the physical product messures?

  total physical product (TPP)

  Average physical product (APP)

  Marginal Physical Product (MPP)
• What is Marginal Physical Product? (MPP)

  The extra output per extra unit of input
• What is total physical product? (TPP)

  the total physical production
• what is the average physical product? (APP)

  Average productivity of input

  such as time/unit
• the shape of APP and MPP depend of the shape of the production function
• the slope of APP is the slope from 0 to X'
• MPP and APP intercept at max APP value
• Why do APP and MPP interact?

  If mpp>app, Average increases

  if Mpp<app. average decreases
• What is the law of diminishing returns?

  as a level of variable input increases, eventually total output decreases
• How do you calculate max production?

  Calculate MPP

  Set = 0

  solve for X max

  sub into F(x) for Y max
• MPP occurs when the slope of the function = 0
• WX+B =. total cost of inputs (cost associated with production function)
• P F(x) = total value of production
• What are the three value product concepts?

  Total value product (TVP)

  Average Value Product (AVP)

  Marginal Value Product (MVP)
• Total value product 


  total value of production

  P.F(x) or P. TPP
• Average value product (AVP)


  Average value of production per unit of input

  TVP/X or P.APP
• Marginal value product (MVP)


  extra value of production per extra unit of input

  ^TVP/^X or P.MPP
• What are the factor cost concepts?

  Total factor cost (TFC)

  Average Factor Cost (AFC)

  Marginal Factor cost (MFC)
• What is Total Factor cost?

  total cost of inputs (Wx+b)
• What is AFC?

  Average cost per unit of variable input

  TFC/ X or WX+B/x
• What is marginal factor cost?


  Extra cost per each unit of Input

  ^tfc/x or Dtfc/dx=W
• Profit is maximized when?

  MVP-MFC=0
• What is the marginal rule for optimization?

  MVP=MFC

  P.MPP
• MVP=MFC


  Increase use of the variable input to the point when extra value added is equal to the extra cost incurred
• What happens when the output price increases?

  MVP curve will shift up

  MFC will fall
• what happens if input price increases?

  Movement along the MVP curve, MFC shifts up
• What happens to MVP and MFC if there is a technological innovation?

  MVP shifts up because MPP increases

  X moves outwards
• As input prices change...


  we move along the MVP curve

  this only applies to producers
• What are consumers?

  Individuals who buy products and good to meet there needs
• What is the consumer problem?

  The consumer problem refers to the issue of limited resources and unlimited wants and needs of consumers.
• What is an indifference curve?

  A bundle of goods that provide the same utility output

  • negative slope
• A higher indifrence curve means greater utility
• what is a budget line?


  quantity combinations of P and Q subject to income
• When does utility maximization occur?

  When Utility on the highest indifference curve = budget line