Costs of Production and Perfect Competition

These flashcards cover key vocabulary and concepts related to Costs of Production and Perfect Competition, essential for understanding the material presented in the lecture.

Production

Converting inputs into output.

Inputs

Resources used to make products (outputs); also called factors.

Factors

Input resources used in production.

Marginal Product (MP)

The additional output generated by additional inputs (workers).

Total Physical Product (TP)

Total output or quantity produced.

Average Product (AP)

The output per unit of input.

Law of Diminishing Marginal Returns

As variable resources are added to fixed resources, the additional output produced will eventually fall.

Explicit Costs

Out-of-pocket costs paid by firms for using resources of others (e.g., rent, wages, materials).

Implicit Costs

Opportunity costs that firms 'pay' for using their own resources (e.g., forgone wages).

Economic Costs

Total revenue minus total economic costs (explicit + implicit costs).

Marginal Cost (MC)

Change in total costs divided by change in quantity; additional cost of producing one more unit.

Average Fixed Costs (AFC)

Fixed costs divided by the quantity produced.

Average Variable Costs (AVC)

Variable costs divided by the quantity produced.

Average Total Costs (ATC)

Total costs divided by the quantity produced.

Three Stages of Returns

Increasing marginal returns, decreasing marginal returns, and negative marginal returns.

Short-Run Production Costs

Period in which at least one resource is fixed.

Long-Run Production Costs

Period in which all resources are variable.

Total Costs (TC)

Sum of fixed costs and variable costs.

Fixed Costs (FC)

Costs that do not change with the amount produced.

Variable Costs (VC)

Costs that change as more or less is produced.

Marginal Cost Curve

The U-shaped curve representing the relationship between marginal product and marginal cost.

Accounting Profit

Total revenue minus accounting costs (explicit costs only).