Economics - Costs and Production

Flashcards covering key vocabulary related to costs, production, and profit in economics.

Total Revenue

The amount a firm receives for the sale of its output.

Total Cost

The market value of the inputs a firm uses in production.

Profit

Total revenue minus total cost.

Explicit Costs

Input costs that require an outlay of money by the firm.

Implicit Costs

Input costs that do not require an outlay of money by the firm.

Economic Profit

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

Accounting Profit

Total revenue minus total explicit cost.

Production Function

The relationship between the quantity of inputs used to make a good and the quantity of output of that good.

Marginal Product

The increase in output that arises from an additional unit of input.

Diminishing Marginal Product

The property whereby the marginal product of an input declines as the quantity of the input increases.

Fixed Costs

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

Variable Costs

Costs that vary with the quantity of output produced.

Average Total Cost (ATC)

Total costs divided by the quantity of output produced.

Average Fixed Cost (AFC)

Fixed cost divided by the quantity of output produced.

Average Variable Cost (AVC)

Variable cost divided by the quantity of output produced.

Marginal Cost (MC)

The increase in total cost that arises from an extra unit of production.

Efficient Scale

The quantity of output that minimizes average total cost.

Economies Of Scale

The property whereby long-run average total cost falls as the quantity of output increases.

Diseconomies Of Scale

The property whereby long-run average total cost rises as the quantity of output increases.

Constant Returns To Scale

The property whereby long-run average total cost stays the same as the quantity of output changes.