Firm's Costs of Production and Revenues

These flashcards cover key concepts related to production costs and revenues for firms, essential for understanding economic principles in business.

Firm

An organizing unit which controls a business, responsible for establishing and operating a business for profit.

Costs of Production

The amount of money a firm spends to produce a certain quantity of a product, including all expenditures on resources.

Explicit Costs

Payments made by a firm for hired factors or purchased resources, such as wages and rent.

Implicit Costs

Costs of self-owned resources not directly paid but considered in economic costs, like owner's wages and the rental value of owned properties.

Opportunity Costs

The amount of money that must be paid to shift a factor of production from one alternative use to another.

Short Run Costs

Costs that apply within a period in which a firm cannot change its size or production capacity.

Fixed Costs

Costs that do not change with the level of output, incurred regardless of production level.

Variable Costs

Costs that vary directly with the level of production, increasing when output increases.

Total Costs

The sum of fixed costs and variable costs in a firm.

Average Fixed Cost (AFC)

The per unit fixed cost of output, calculated by dividing total fixed costs by total output.

Average Variable Cost (AVC)

The per unit variable cost of output, determined by dividing total variable costs by total output.

Marginal Cost (MC)

The addition to total costs from the production of one more unit of output.

Long Run Costs

The period in which a firm can vary all inputs and change size, impacting all production costs.

Long Run Average Cost Curve (LAC)

A curve that shows the minimum average cost of production at each output level when all variables are adjustable.

Total Revenue (TR)

The total amount of money earned from selling all units of output, calculated as price multiplied by quantity.

Average Revenue (AR)

The revenue earned per unit sold, computed by dividing total revenue by the number of units sold.

Marginal Revenue (MR)

The additional revenue gained from selling one more unit of output.

Perfect Competition

A market structure where many firms offer identical products, and no single seller can influence market price.

Monopoly

A market situation where a single firm controls the supply of a good with no close substitutes, allowing it to set prices.