Chapter 14: The Costs of Production

These flashcards focus on key terms and concepts from Chapter 14, covering production costs, profit calculations, and the relationship between inputs and outputs.

Production Function

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

Marginal Product (MP)

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

Explicit Costs

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

Implicit Costs

Costs that do not require an outlay of money, representing the opportunity cost of resources.

Total Revenue (TR)

The amount a firm receives from the sale of its output, calculated as price times quantity (TR = P × Q).

Total Cost (TC)

The market value of all the inputs a firm uses in production, calculated as TC = Explicit Cost + Implicit Cost.

Economic Profit

Total Revenue minus Total Costs (including both explicit and implicit costs).

Accounting Profit

Total Revenue minus Total Explicit Costs.

Marginal Cost (MC)

The increase in total cost arising from producing an extra unit of output.

Economies of Scale

A situation in which long-run average total cost falls as the quantity of output increases.

Diminishing Marginal Product

The principle that as the quantity of an input increases, the marginal product of that input decreases.

Average Total Cost (ATC)

Total cost divided by the quantity of output, representing the cost per unit.

Long Run

A time period in which all inputs are variable, and firms can adjust their factory size and production methods.

Short Run

A time period in which at least one input is fixed, typically including capital such as factories or land.

Fixed Costs (FC)

Costs that do not vary with the quantity of output produced, such as rent or loan payments.

Variable Costs (VC)

Costs that vary with the quantity of output produced, such as wages and materials.