Chapter 13: The Costs of Production

0.0(0)
studied byStudied by 0 people
learnLearn
examPractice Test
spaced repetitionSpaced Repetition
heart puzzleMatch
flashcardsFlashcards
Card Sorting

1/27

encourage image

There's no tags or description

Looks like no tags are added yet.

Study Analytics
Name
Mastery
Learn
Test
Matching
Spaced

No study sessions yet.

28 Terms

1
New cards
The goal of a firm is to
maximize profit.
2
New cards
Total revenue
The amount a firm receives for the sale of its output. Calculated by P * Q
3
New cards
Total cost
The market value of the inputs a firm uses in production.
4
New cards
Profit
Total revenue minus total cost
5
New cards
Costs of producing an item must include all the
opportunity costs of inputs which include both explicit and explicit costs, both examined by economists.
6
New cards
Explicit costs
Input costs that require an outlay of money by the firm. Accountants focus only on this.
7
New cards
Implicit costs
Input costs that do not require an outlay of money by the firm.
8
New cards
Economic profit
Total revenue minus total cost, including explicit & implicit costs.
9
New cards
Accounting profit
Total revenue minus total explicit cost.
10
New cards
If implicit costs > 0,
accounting profit > economic profit.
11
New cards
Production function
The relationship between quantity of inputs used to make a good and the quantity of output of that good.
12
New cards
Marginal product
The increase in output that arises from an additional unit of input. Decreases as amount of labor used increases.
13
New cards
Diminishing marginal product
The property whereby the marginal product of an input declines as the quantity of the input increases.
14
New cards
Total cost is equal to
fixed cost plus variable cost.
15
New cards
Fixed costs
Costs that do not vary with the quantity of output produced.
16
New cards
Variable costs
Costs that do vary with the quantity of output produced.
17
New cards
Average Total Cost (ATC)
Total cost divided by the quantity of output produced; the sum of average fixed cost and average variable cost.
18
New cards
Average Fixed Cost (AFC)
Fixed cost divided by the quantity of output.
19
New cards
Average Variable Cost (AVC)
Variable costs divided by the quantity of output.
20
New cards
Marginal cost
The increase in total cost that arises from an extra unit of production.
21
New cards

Rising marginal costs occurs due to

diminishing marginal product.
22
New cards
As output expands,
AFC declines and AVC typically increases, which pulls down ATC.
23
New cards
Efficient scale

The quantity of output that minimizes average total cost.

24
New cards
When MC < ATC,
ATC is falling.
25
New cards
When MC > ATC,
ATC is rising.
26
New cards
Economies of scale
The property whereby long-run average total cost falls as the quantity of output increases.
27
New cards
Diseconomies of scale
The property whereby long-run average total cost rises as the quantity of output increases.
28
New cards
Constant returns to scale
The property whereby long-run average total cost stays the same as the quantity of output changes.