Economics of Production Costs

Flashcards covering key concepts related to the economics of production costs, including definitions of terms and principles regarding costs, profits, and economies of scale.

What is the primary goal of a firm according to economists?

To maximize profit.

What is the correct definition of total cost?

The amount of money a firm pays to buy inputs.

How is profit defined?

Net revenue minus total costs.

What is net profit?

Total revenue minus explicit and implicit costs.

What is the definition of explicit costs?

Costs that require an outlay of money by the firm.

What does the marginal product of labor reflect?

The change in output resulting from a one-unit increase in labor.

What is diminishing marginal product?

When adding more workers results in smaller increases in output.

What does average total cost tell us?

The total cost of producing a unit of output on average.

What occurs when marginal cost is less than average total cost?

Average total cost is falling.

What characterizes economies of scale?

When long-run average total costs decrease as output increases.

What is an example of a fixed cost?

Rent paid on a factory.

What distinguishes short-run cost analysis from long-run cost analysis?

In the short run, some inputs are fixed.

What is the relationship between average total cost and marginal cost at the efficient scale?

Marginal cost equals average total cost.

What does increasing marginal product indicate about costs?

Marginal cost is falling.

What implies that the average fixed cost curve always declines?

As output increases.

What might indicate that a firm is experiencing diseconomies of scale?

When long-run average total costs rise as output increases.