economics

• Utility


  The amount of satisfaction derived from the consumption of a commodity
• Utils


  Measurement unit of utility
• Types of utility


  • Cardinal utility
  • Ordinal utility
• Cardinal utility


  We can assign values for utility
• Ordinal utility


  Ranking of bundles or preferences is enough to describe utility
• Marginal utility


  Additional satisfaction derived from consuming an additional unit of a good or service
• Principle of diminishing marginal utility

  As more and more of a good are consumed, the process of consumption will (at some point) yield smaller and smaller additions to utility
• Marginal utility per peso


  Additional utility derived from spending the next peso on the good
• Equi-marginal rule


  A person should distribute their resources in such a way that the additional satisfaction obtained from the last unit of each resource is the same
• Bundles of goods that satisfy the equi-marginal principle condition
• Firms


  Concerned with the purchase and employment of resources in the production of various goods and services
• Forms of firms


  • Sole Proprietorship
  • Partnership
  • Corporation
• Fixed Inputs


  Constant all through out the different levels of output
• Variable Inputs


  Changes depending on quantity or level of output being produced
• Total Product (TP or Q)


  The total amount of output produced by the firm, measured in physical units
• Marginal Product (MP)


  The change in output for a one unit change in the quantity of an input, holding all other inputs constant
• Diminishing Marginal Product


  As the use of an input increases (with other inputs fixed), a point will eventually be reached at which the resulting additions to output decrease
• Average Product (AP)


  Measures the total output per unit of input used; expresses the productivity of an input
• Stages of Production


  Stage 2 - The use of fixed and variable inputs are maximized
• Implicit Cost


  Imputed costs of self-owned resources based on their opportunity costs; no actual payment made from one entity to another
• Explicit Cost


  Payments made by one entity/individual to another, "out of pocket"
• Short Run


  At least one input is fixed, there is distinction between fixed and variable costs
• Long Run


  No fixed costs
• Total Fixed Cost (TFC)


  Does not depend on the level of output produced, still present even if there is no production
• Total Variable Cost (TVC)


  Value changes depending on the level of output of a firm, TVC = 0 if Q = 0, TVC increases as Q increases
• Total Cost (TC)


  Sum of TFC and TVC, increase in Q will also increase TC of a firm
• Marginal Cost (MC)


  Shows the change in total cost for a unit change in output
• AFC declines as Q increases but never becomes 0
• As Q increases, AVC declines initially and then rises</b>
• AC = AFC + AVC
• TFC = # of FI * P of FI
• TVC = # of VI * P of VI
• TFC = AFC * Q
• TVC = AVC * Q
• TC = AC * Q
• C


  Total Product
• TVC


  Total Variable Cost

  
• TC


  Total Cost
• AFC


  Average Fixed Cost
• AVC


  Average Variable Cost