Unit 3: Production Costs

profit

TR-TC

TR

P x Q/output

explicit cost

anything a check is written for

accounting profit

explicit costs only

wages forgone

whatever money an entrepreneur can earn else where

interest foregone

whatever interest a business loses when they pull it out of an account

rent forgone

money you could make off of land but don't

economic cost

explicit and implicit cost

depreciation

loses value over time

normal profit

economic profit = 0

TC

FC + VC

AVC

VC / Q output

AFC

FC / Q output

ATC

TC / Q output or AFC + AVC

MC

change in TC / change in Q output

what happens to marginal cost if marginal product increases?

decreases, because they are inverse of each other

what happens to average variable cost when average product per worker increases?

decreases

Difference between short-run and long-run?

SR- deals with fixed variables and fixed cost, LR- deals with fixed variables, not fixed cost

whats the inverse of AVC?

AP

whats the inverse of MC

MP

whats the inverse of MP

MC

whats the inverse of AP

AVC

the point of diminishing returns is when ( TP / MP / AP ) is at its highest point

MP

the highest point of AP is when (MC / ATC / AVC / AFC) is at its lowest point

AVC

the highest point of MP is when ( MC / ATC / AVC / AFC) is at its lowest point

MC

profit is maximized when MR= (MC / ATC / AVC / AFC)

MC

when the plant size and labor increases by the same percent; output increases by a larger percent; ATC falls

economies of scale

when plant size and labor increases by the same percent; output increases by a smaller percent; ATC increases

diseconomies of scale

when plant size and labor decrease by the same percent; output increases by the same percent; ATC remains constant

LRAC

the cost curve that has a downward slope (declining cost as quantity increases)

AFC

the cost curve that is 'U' shaped and includes fixed and variable cost overages

ATC

the cost curve that mirrors the marginal product curve

MC

another name for economies of scale

increasing return to scale

another name for diseconomies of scale

decreasing return to scale

output % increase > input % increase

economies of scale

output % increase < input % increase

diseconomies of scale

what curve is equal to supply

MC

sunk cost

a cost curve that can not be partly or fully recovered through any subsequent action

utility

benefit or satisfaction that a person gets from the consumption of a good or service

in the long run,