Costs of Production - Lecture Review

A collection of flashcards covering key concepts in the lecture on costs of production, including definitions and relationships between various economic terms.

What is the primary goal of a firm according to microeconomics?

To maximize profit.

How is total revenue (TR) calculated?

Total revenue (TR) is calculated by multiplying the price (P) by the quantity (Q) sold.

What are explicit costs?

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

What are implicit costs?

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

What is the formula for total cost (TC)?

Total cost (TC) is the sum of explicit costs and implicit costs.

What is economic profit?

Economic profit is total revenue minus total costs (including both explicit and implicit costs).

How does accounting profit differ from economic profit?

Accounting profit is total revenue minus total explicit costs and is usually larger than economic profit.

What defines the marginal product?

Marginal product is the increase in output that arises from an additional unit of input.

What does diminishing marginal product imply?

As the quantity of an input increases, the marginal product of that input decreases.

What is average total cost (ATC)?

Average total cost (ATC) is total cost divided by the quantity of output produced.

What is marginal cost (MC)?

Marginal cost (MC) is the increase in total cost arising from producing an extra unit of output.

What is the relationship between marginal cost and average total cost (ATC)?

When marginal cost is less than average total cost, ATC decreases; when MC is greater than ATC, ATC increases.

What do economies of scale refer to?

Economies of scale occur when long-run average total cost falls as the quantity of output increases.

What are diseconomies of scale?

Diseconomies of scale occur when long-run average total cost rises as the quantity of output increases.

What are fixed costs (FC)?

Fixed costs are costs that do not vary with the quantity of output produced.

What are variable costs (VC)?

Variable costs are costs that vary with the quantity of output produced.