Chapter 13 Flashcards
total revenue
the amount a firm receives for the sale of its output
P X Q
total cost
the market value of the inputs a firm uses in production
(average total cost)X Quantity
profit
total revenue - total cost
explicit costs
input costs that require an outlay of money by the firm
ex: wages to workers
implicit costs
input costs that do not require an outlay of money by the firm (ex: opportunity cost)
economic profit
total revenue - total cost (including both explicit and implicit cost)
accounting profit
total revenue - total explicit cost (ignores implicit costs so it is higher than economic profit)
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 additional unit of input
diminishing marginal product
the property whereby the marginal product of an input declines as the quantity of the input increases
fixed costs
costs that do not vary with the quantity of output produced
variable costs
costs that vary with the quantity of output produced
average total costs
total cost dived by the quantity of output
average fixed cost
fixed cost / the quantity of output
average variable cost
variable cost / quantity of output
marginal cost
the increase in total cost that arises from an extra unit of production
MC = change in TC / change in Q
efficient scale
the quantity of output that minimizes average total cost
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 property whereby long-run average total cost stays the same as the quantity of output changes
