Ch 10 - Rational Producer Behaviour

**Rational producer behaviour**

in an economy, firms are assumed to be having in a rational way, by always trying to maximise the profits they make

**Economic cost**

this is the total sacrifices made in order to bring a good or service into existence

**Implicit costs**

this is forgone alternative which a firm would have undertaken if it had taken note of it

**Explicitly costs**

monetary costs that a firm pay to outside suppliers of inputs 

**Total fixed cost (TFC)**

costs that a firm incurs that do not change with output in a given time period

**Total variable cost (TVC)**

costs that a firm faces which vary with change in output within a given time period

**Total cost (TC)**

cost of all fixed and variable factors to produce an output TC = TVC + TFC

__**Average costs**__

costs a firm incurs to produce every unit of output 

**Average fixed cost (AFC)**

fixed cost per unit output AFC = TFC/q

**Average variable cost (AVC)**

variable cost per unit output AVC = TVC/q

**Average cost (AC)**

unit per cost per unit output, sum of average fixed cost and average variable cost ATC = TC/q

__**Marginal Cost**__

additional cost incurred for producing one more unit of an output 

**Revenue**

income a firm received for selling its output. Revenues can be average, total, or marginal revenue

**Total revenue (TR)**

total amount of money that a firm receives from selling its produced output in a given period of time

**Average revenue (AR)**

revenue a firm receives for selling every unit of its output 

**Marginal revenue (MR)**

extra income earned by a firm for selling its good or service in a specified period of time

Revenue maximising

when the firm aims to increase its revenue through sales 

Rational producer behaviour

in an economy, firms are assumed to be having in a rational way, by always trying to maximise the profits they make

Economic cost

this is the total sacrifices made in order to bring a good or service into existence

Implicit costs

this is forgone alternative which a firm would have undertaken if it had taken note of it

Explicitly costs

monetary costs that a firm pay to outside suppliers of inputs

Total fixed cost (TFC)

costs that a firm incurs that do not change with output in a given time period

Total variable cost (TVC)

costs that a firm faces which vary with change in output within a given time period

Total cost (TC)

cost of all fixed and variable factors to produce an output TC = TVC + TFC

Average costs

costs a firm incurs to produce every unit of output

Average fixed cost (AFC)

fixed cost per unit output AFC = TFC/q

Average variable cost (AVC)

variable cost per unit output AVC = TVC/q

Average cost (AC)

unit per cost per unit output, sum of average fixed cost and average variable cost ATC = TC/q

Marginal Cost

additional cost incurred for producing one more unit of an output

Revenue

income a firm received for selling its output

Total revenue (TR)

total amount of money that a firm receives from selling its produced output in a given period of time

Average revenue (AR)

revenue a firm receives for selling every unit of its output

Marginal revenue (MR)

extra income earned by a firm for selling its good or service in a specified period of time

Normal profit

when total revenue is equal to total cost

Abnormal profit

when total revenue is more than total cost

Revenue maximising

when the firm aims to increase its revenue through sales