Untitled Flashcards Set

Total Revenue

The amount of money a firm receives from selling its products.

Total Cost

The total amount incurred by a firm to produce its items, including both explicit and implicit costs.

Profit Formula

Profit = Total Revenue - Total Cost.

Explicit Costs

Direct cash expenses that are easily visible and involve out-of-pocket expenditures.

Implicit Costs

Non-cash costs that are not readily apparent and represent opportunity costs.

Sunk Costs

Costs that have already been incurred and cannot be recovered.

Economic Profit

Total Revenue minus Opportunity Costs, which include both explicit and implicit costs.

Accounting Profit

Total Revenue minus Explicit Costs.

Opportunity Costs

The potential benefits missed when choosing one alternative over another; includes both explicit and implicit costs.

Average Product

total product output (meaning how much product was made)/ total product input (how many people or machines made this product)

Marginal Product

Change in product (meaning how much extra product did you gain from that extra person or people)/ the extra person or people

Diminishing Marginal Product

The phenomenon where the marginal product of an input declines as the input quantity increases beyond a certain point.

Total Fixed Cost (TFC)

Costs that do not change with the level of output produced.

Total Variable Cost (TVC)

Costs that vary depending on what was used

Total Costs (TC)

Total Costs are calculated as TC = TFC + TVC.

Average Fixed Cost (AFC)

Total Fixed Costs divided by the quantity of output produced.

Average Variable Cost (AVC)

Total Variable Costs divided by the quantity of output produced.

Average Total Cost (ATC)

Total Costs divided by the quantity of output produced.

Marginal Costs (MC)

Change in total Costs/ Change in quantity of product

Shape of Average Total Cost (ATC) Curve

Typically U-shaped; declines at low output levels and increases at high output levels.

Shape of Average Variable Cost (AVC) Curve

A stretched-out U shape.

Decision-Making in Sunk Costs

Sunk costs are often ignored when making economic decisions.

Accountants' Focus

Accountants typically focus on explicit costs and may ignore implicit costs.

Economists' Approach to Costs

Economists consider both explicit and implicit costs in evaluating total costs.

Total Cost Calculation

Total Cost includes both fixed and variable costs: TC = TFC + TVC.

Average Total Costs (ATC) Calculation

ATC = TC / quantity of output.

Effect of Diminishing Returns

As marginal product decreases, marginal costs may rise, influencing average costs.

Costs in Short Run

In the short run, fixed and variable costs affect average total costs.

Impact of Marginal Cost on Averaged Costs

Marginal costs influence the shape of average total cost and average variable cost curves.

TFC

Total Fixed Costs which remain constant regardless of output level.

TVC

Total Variable Costs which change as output changes.

Identification of Costs

Recognizing the explicit and implicit costs is essential for understanding total costs.

Relation of Profit to Cost

Profit is derived from the difference between total revenue and total costs.

Understanding Marginal Changes

Marginal changes in input can significantly impact overall production and costs.