Chap 13 Production Costs Flashcards
Implicit costs
Input costs that do not require an outlay of money
Opportunity costs
Total revenue
The amount a firm receives for the sale of its output
Total cost
TC = FC + VC
The market value of the inputs a firm uses in production
Profit
Total revenue minus total cost
Accounting profit
Total revenue minus total explicit cost
TR-TEC
Economic profit
Total revenue minus total cost, including both explicit and implicit costs
Production function
The relationship between 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
Explicit costs
Input costs that require an outlay of money by the firm
Diminishing marginal product
The property whereby the marginal product of an input declines as the quantity of the input increases
The shape of the production function reflects the law of diminishing marginal returns
True
Average total cost (ATC)
ATC=TC/Q
Total cost divided by the quantity of output
- can be expressed as the sum of average fixed cost and average variable cost
- tells us the cost of the typical unit but not how much total cost will change as the firm alters its level of production
Average fixed cost
AFC = FC/Q
Fixed cost divided by the quantity of output
Average variable cost
AVC = VC/Q
Variable cost divided by the quantity of output
Marginal cost
MC=^TC/^Q
The increase in total cost that arises from an extra unit of production
