Costs of Production

This set of flashcards covers key vocabulary and concepts related to costs of production.

Production Function

The relationship between the quantity of inputs used and the quantity of output produced.

Marginal Product

The increase in output arising from an additional unit of input, with all other inputs held constant.

Explicit Costs

Costs that require an outlay of money, such as wages paid to workers.

Implicit Costs

Costs that do not require a cash outlay, such as the opportunity cost of the owner's time.

Economic Profit

Total revenue minus total costs, including both explicit and implicit costs.

Accounting Profit

Total revenue minus total explicit costs.

Fixed Costs

Costs that do not vary with the quantity of output produced.

Variable Costs

Costs that vary with the quantity produced.

Marginal Cost

The increase in total cost from producing one more unit.

Average Total Cost

Total cost divided by the quantity of output produced.

Economies of Scale

The phenomenon where average total costs decrease as production increases.

Diseconomies of Scale

The phenomenon where average total costs increase as production increases.

Diminishing Marginal Product

The decrease in the marginal product of an input as more of that input is used, with other inputs held constant.