Rational producer behaviour

Explicit costs:

• increase in total of producing an extra unit of output

• factors purchased from others that are not owned by the firm

• factors that firm already owns, but they could have been employed in another use

• costs that do not change when the quantity of output changes, and they only go away when the business fails or closes down

How to calculate marginal cost (MC)?

• =change in total cost/change in quantity

• =total fixed cost/quantity

• =total fixed cost+total variable cost

• =total cost/quantity

if a firm wishes to maximize its profits, it should produce at level of output where:

• MR=AC

• MC=AC

• MC=MR

• AR=AC

 Where is the point of profit minimization?

• at q1

• at q2

• beyond q2

• below q1

When the difference between a company's total revenue and combined explicit and implicit costs are equal to zero, the company gets:

• abnormal profit

• normal profit

• loses

• extra profit

Satisficing is when:

• business includes the public interest in its decision making

• a firm increases market share and increases the size of the firm by cutting price and increasing sales

• a firm sells at a low price to increase their total revenue by selling a higher volume of gooda

• the producer doesn’t want to push themselves too far; they will work hard enough to make a resonable living but prefer to follow other goals such as family or leisure

Label the curves:

• yellow - ATC,

  blue - AVC,

  red - MC

• yellow - AVC,

  blue - ATC,

  red - MC

• yellow - MC,

  blue - AVC,

  red - MTC

• yellow - ATC,

  blue - MC,

  red - AVC