well, today.. i've already studied about microeconomics, a field of study that give me a snowball chance in this master program :D. i've read a big book of mankiw on chapter 13 up to 14. it's surprisingly, with no feeling of objection, i finished it. and because of that, let me summarize these chapters:
chapter 13.
basically, this chapter is discussing about the cost of production. as simplify, i defined cost of production as a sums of implicit and explicit cost. explicit cost is the cost that firm spend by its need to produce good and service, whereas implicit cost is the cost supposed to have by a firm/persons when they can do any other valuable thing compared to their actual activity. so, the accountants would just record the explicit cost, but the economist would include implicit cost to measure cost of production.
as we know, firms built in order to make a profit. to measures profit, the formula is:
profit = total revenue - total cost.
revenue is equal to price multiplied by quantity.
total cost could measured by the sums of fixed cost and variable cost.
thus, when you need to find an average of something here, just divide it with quantity (e.g: average total cost = total cost divided by quantity, etc)
in this chapter, the most important thing to understand is about conrad's curve, which separated by marginal cost (MC), average total cost (ATC), average variable cost (AVC) and average fixed cost (AFC). collision between MC and ATC would make a economic scale (between cost and quantity output).
the relationship between short run and long run average total cost can be seen by making a bathtub curve, which can shown a economies and diseconomies scale, includes constant return of scale.
chapter 14.
this chapter focuses on competitive market for the firms. there are 3 identical impact of competitive market:
1. so many buyers and seller in the market
2. and they're free to enter and exit from the market
3. while the good and serives that offered usually largely the same.
in competitive market i noted that price, average revenue and marginal revenue are at the same amount.
by doing a curve analysis we can see how the firms make a decisions whether to continue its business or shut down it. however, when the price is below the AVC curve, thus the firms have no choice but to shut down the businesss. but when price is between ATC and AVC, firms still have a choice to continue its business in order to cover the fixed cost. hence, the price is above the ATC cost, the business would be profitable.
i guess thats all the important matters that i've already learned. so, keep up.
:)
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