Total Revenue - Total Cost or in symbolic terms P = TR - TC.
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Explicit costs
Input costs that require an outlay of money by the firm (e.g. rent). Money that actually leaves a firm in the productive process. Distinguish from implicit costs.
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Total revenue
The total amount of money a firm receives by selling goods or services symbolized by TR.
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Total Cost
The market value of ALL the inputs a firm uses in production, symbolized by TC, is calculated by adding fixed costs and variable costs. Also depends on accounting perspective and economic perspective.
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Implicit costs
Input costs that do not require an outlay of money by the firm (e.g. interest forgone on money used). The opportunity costs associated with a firm's use of resources that it owns.
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Interest
A large amount of money losses implicitly can be the cost of capital (investment), by buying the capital you forgo _______ you could have gained.
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Accounting profit
Total revenue minus total explicit cost, Profit will equal more than 0 in this calculation.
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Economic profit
Total revenue minus total cost, including both explicit and implicit costs, in this view profits are usually not as large as accounting profit.
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Production function
The relationship BETWEEN quantity of inputs (usually worker) used to make a good and the quantity of output(product or services) of that good. Gets flatter as input inceases.
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Marginal Product
The increase in output that arises from an additional unit of input( usually a worker acts as the unit of input).
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Diminishing Marginal Product
The property whereby the marginal product of an input declines as the quantity of the input increases. Makes the production function level off after a while. Makes sense because the firm may become more crowded which reduces overall efficiency.
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Total cost curve
A graph that shows the relationship between total variable cost and the level of a firm's output. Gets steeper as the amount produced increases.
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Fixed costs
Expenses that remain the same for a period of time; must be paid regardless of the quantity of a good or service produced/sold. Like rent., salary ,etc,.
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Variable costs
Costs that change directly with the amount of production (e.g. energy supply and labor costs).
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Industrial Organization
The study of how firms' decisions about prices and quantities depend on the market conditions they face. An example of questions that this can answer is : "How does the number of firms in a industry affect the prices in a market and the efficiency of the outcome.
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average total cost
Total cost divided by the quantity of output produced. Decreases in a somewhat parabolic rate.
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average fixed cost
Fixed cost divided by the quantity of output. Decreases at a somewhat parabolic shape.
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average variable cost
Variable cost divided by the quantity of output. Always rises at a constant rate.
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marginal cost
the increase in total cost that arises from an extra unit of production, Always rises at a pretty constant rate.
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Efficient scale
The quantity of output that minimizes average total cost, is at the bottom of the ATC curve which happens to be an intersection with the MC curve.
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falling
Whenever marginal cost is less than average total cost, average total cost is ________
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rising
Whenever marginal cost is more than average total cost, average total cost is ________
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economies of scale
The property whereby long-run average total cost falls as the quantity of output increases (left-most downward sloping part of the long-run ATC). Arises because higher production levels allow specialization among workers, allowing each of them to get better at a specific task.
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diseconomies of scale
The property whereby long-run average total cost rises as the quantity of output increases (right-most upward sloping part of the long-run ATC). Usually arise because of coordination problems.
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constant returns to scale
The property whereby long run average total cost stays the same as the quantity of output changes
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