Chapter 13- costs of production
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34 Terms
Profit
The difference between total revenue and total cost.
Total Revenue
The quantity of output produced times the price at which it is sold.
Total Cost
The sum of all explicit and implicit costs of production.
Explicit Costs
Input costs that require an outlay of money by the firm.
Implicit Costs
Input costs that do not require an outlay of money by the firm.
Opportunity Cost
The value of the next best alternative foregone.
Accounting Profit
Total revenue minus explicit costs; does not consider implicit costs.
Economic Profit
Total revenue minus total opportunity costs; considers both explicit and implicit costs.
Production Function
Shows the relationship between the quantity of inputs used and the quantity of output produced.
Marginal Product
The change in output that arises from an additional unit of input.
Diminishing Marginal Product
The property whereby the marginal product of an input declines as the quantity of the input increases.
Total-Cost Curve
Depicts the relationship between the quantity of output produced and the total cost of production.
Fixed Costs
Costs that do not vary with the quantity of output produced.
Variable Costs
Costs that do vary with the quantity of output produced.
Average Total Cost
Total cost divided by the quantity of output.
Average Fixed Cost
Fixed costs divided by the quantity of output.
Average Variable Cost
Variable costs divided by the quantity of output.
Marginal Cost
The cost of producing one additional unit of output.
Efficient Scale
The quantity of output that minimizes average total cost.
U-shaped Curve
Describes the average total cost curve, which decreases initially, then increases.
Economies of Scale
Long-run average total cost falls as output increases.
Diseconomies of Scale
Long-run average total cost rises as output increases.
Constant Returns to Scale
Long-run average total cost stays the same as output changes.
Short Run
A time frame in which at least one factor of production is fixed.
Long Run
A time frame in which all factors of production can be varied.
Production Decisions
Choices made by firms about the quantity of goods and services to supply.
Market Conditions
The characteristics of the market that affect firms' pricing and production decisions.
Input Costs
Costs associated with the resources used in production.
Factory Size
The scale of the production facility, which can be fixed in the short run.
Opportunity Costs of Production
The sum of explicit and implicit costs attributed to producing goods.
Specialization of Labor
Dividing labor into distinct tasks to improve efficiency in production.
Marginal Cost Curve
A graphical representation of the increase in cost resulting from producing one more unit.
Cost Structures
The various costs a firm incurs in the process of production.
Optimal Output
The quantity of output that maximizes a firm's profit based on its cost structure.