Microeconomics Chapter 14

Flashcards covering key vocabulary and concepts regarding production costs and economic principles from Chapter 14 of Mankiw's Principles of Microeconomics.

Production Function

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

Marginal Product

Increase in output that arises from an additional unit of input, holding other inputs constant.

Total Revenue (TR)

The total amount a firm receives from the sale of its output, calculated as price multiplied by quantity.

Total Cost (TC)

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

Profit

The financial gain obtained when total revenue exceeds total cost.

Opportunity Cost

The cost of something in terms of what you give up to obtain it.

Explicit Costs

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

Implicit Costs

Costs that do not require an outlay of money and represent the opportunity cost of a firm owner's time.

Economic Profit

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

Accounting Profit

Total revenue minus total explicit costs.

Average Total Cost (ATC)

Total cost divided by the quantity of output, also equal to average fixed cost plus average variable cost.

Marginal Cost (MC)

The increase in total cost that arises from producing an additional unit of output.

Short Run

A period in which some inputs are fixed and firms can only alter variable factors of production.

Long Run

A period in which all inputs can be varied and firms can change their production levels significantly.

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 situation in which long-run average total cost remains unchanged as the quantity of output varies.

Fixed Costs (FC)

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

Variable Costs (VC)

Costs that vary with the quantity of output produced.

Diminishing Marginal Product

The decrease in the additional output generated by an additional unit of input.

Total Cost Curve

A graphical representation that shows the relationship between total cost and quantity of output.

Average Fixed Cost (AFC)

Total fixed cost divided by the quantity of output.

Average Variable Cost (AVC)

Total variable cost divided by the quantity of output.

Total Cost Equation

Total Cost (TC) = Fixed Costs (FC) + Variable Costs (VC).

Labor Market Wage

The market rate paid to workers for their labor.

Production Function Slope

The slope of the production function represents the marginal product of labor.

Short-Run Costs

Costs that include both fixed and variable costs during a period when some inputs are fixed.

Long-Run Average Total Cost (LRATC)

The lowest average total cost achievable when all inputs can be varied.

Total Revenue Calculation

Total revenue (TR) is calculated using the formula TR = Price (P) × Quantity (Q).

Cost of Capital

The total cost of funding a business, including both direct costs and opportunity costs.

Production Output Relation

The relationship between the quantity of input used to produce a good and the total output generated.

Utility Maximization

A firm's goal to maximize profit while managing costs.

Average Cost Behavior

The trend of average costs that typically falls initially and rises after reaching a certain level of output.

Market Competition Effects

The impact of market dynamics on profit margins and cost structures.

Production Decisions

Decisions made by firms regarding the quantity of output based on costs and revenues.

Job Specialization Benefits

Greater efficiency and productivity resulting from dividing labor into specialized tasks.

Financial Viability

The ability of a firm to maintain profitability and cover all costs over time.

Sales Revenue Impact

The effect of pricing strategies on a firm's total revenue.

Investment in Technology Effects

The influence of technological advancements on production efficiency and cost management.

Cost Structure Analysis

The evaluation of fixed and variable costs to determine profitability.

Efficiency of Scale

The optimal output level where average costs are minimized.

Cost Minimization Strategies

Approaches taken by firms to reduce costs while maintaining production levels.

Input Resource Allocation

The distribution of resources among various production processes to balance cost and output.

Industry Competition Dynamics

The changing landscape of competition within a market, affecting pricing and costs.