Inputs and Costs: Understanding Market Behavior
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11 Terms
Marginal cost
The additional cost of doing one more unit of that activity.
Increasing Marginal Cost
When each additional unit of an activity costs more than the previous unit.
Fixed Cost
A cost that does not depend on the quantity of output produced.
Ex: rent, property taxes
Variable Cost
A cost that depends on the quantity of output produced.
Ex: raw materials, labor
Sunk Cost
A cost which is non-recoverable and should not influence future decisions.
Optimal quantity
The quantity of an activity that generates the maximum total net gain (MC=MR)
The mythical man-month
More labor does not necessarily lead to more production; at some point, additional labor is counterproductive.
The Spreading Effect
When more production lowers cost.
The diminishing returns effect
When more production raises cost.
If MC is below ATC
more goods produced at less cost
IF MC is above ATC
cost more to produce an additional unit
Note 
Flashcards (23)