module 7 - taxes

tax revenue

the total amount of money a firm receives from selling its goods or services

• price x quantity sold

accounting profit

total money a firm makes after subtracting ONLY explicit costs

explicit costs

direct, recorded costs

implicit costs

opportunity costs of using resources the firm already owns, rather than spending money directly

• not paid out in cash

• can be time, wages, rent, supplies, etc

economic profit

measure of profit that takes into account both explicit and implicit costs

total cost

sum of all costs in a firm incurs in the production of goods and services

• implicit and explicit costs

variable cost

the costs tat change with the level of output

• more a firm producers, the higher this cost

• cost per unit x number of units produced

fixed cost

the costs that do not change with the level of production

• rent

• salaries

• insurance

• property taxes

• equipment

average total cost (ATC)

the total cost per unit of output

• total cost/quantity

average variable cost

the variable cost per unit of output

• variable cost/quantity

average fixed cost

the fixed cost per unit of output

• total fixed cost (TFC)/quantity

marginal cost (mc)

fundamental concept in economics that refer to the additional cost incurred by producing one more unit of a good or service

• formula: change in total cost/change in quantity produced

decreasing (marginal) returns - law of diminishing marginal returns

fundamental economic principal that describes what happens to output when you continuously add more of one input to production while holding all other inputs constant

• hiring more workers (place can become too cramped with too many people)

decreasing returns to scale

a situation in which a proportional increase in all inputs leads to less than proportional increase in output

• long run

• occurs when a firm expands its production capacity; changing all its factors of production proportionally

increasing returns to scale

long run production phenomenon where a proportional increase in all inputs leads to a more than proportional increase in output

• specialization and division of labor

• technological advantages

• bulk purchasing and discounts

• managerial efficiencies

constant returns to scale

occur in the long run when a proportional increase in all inputs leads to an equally proportional increase in output

goal of firms

maximize profits (total revenue minus total cost)

all costs on a graph together