MICRO CH 14

The Costs of Production

total revenue

the amount a firm receives for the sale of its output

total cost

the market value of the inputs a firm uses in production

profit

total revenue - total cost = ____

Opportunity cost

the cost of something is what you give up to get it

Firm’s cost of production

includes all the opportunity costs of making its output of goods and services

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

Total Costs

__ ___ = Explicit Costs + Implicit Costs

Economic Profit

total revenue minus total cost, including both explicit and implicit costs.

Accounting Profit

total revenue minus total explicit cost

Production Function

relationship between the quantity of inputs used to make a good and the quantity of output of that good

Marginal Product

the increase 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

relationship between quantity produced & total costs

Fixed Costs

costs that do not vary with the quantity of output produced

Variable Costs

costs that vary with the quantity of output produced.

Average total cost

total cost / quantity of output = ___ __ ___

average fixed cost

fixed cost / quantity of output = ___ ___ __

average variable cost

variable cost / quantity of output = ___ __ __

Marginal Cost

• the increase in total cost that arises from an extra unit of production

• __ ___ = change in total cost / change in quantity

Rising Marginal Cost

• marginal cost rises as the quantity of output produced increases

• upward slope reflects diminishing marginal product

Economies of Scale

long-run average total cost falls as the quantity of output increases

constant returns to scale

long-run average total cost stays the same as the quantity of output changes

diseconomies of scale

long-run average total cost rises as the quantity of output increases