Chapter 13 Flashcards
Total revenue (firm)
The amount of money a firm receives after selling their outputs
Total cost
The value of the inputs used in production
Profit
Revenue - cost
Explicit costs
Input costs that require money and directly impact profitability. ex: wages, materials
Implicit costs
Input costs that do not require money; opportunity cost. ex: opportunity cost of working somewhere else
Economic profit
Total revenue - total costs (explicit and implicit costs)
Accounting profit
Total revenue - total explicit cost
Production function
Relationship between quantity of inputs and quantity of outputs used to make a good (graph)
Marginal product
The increase in output with one additional unit of input
Diminishing marginal product
When the marginal product is decreasing (rate of increase is negative)
Average total cost
Total cost / quantity of output
Average fixed cost
Fixed cost / quantity of output
Average variable cost
Variable cost / quantity of output
Marginal cost
The increase in cost from one additional unit of production
Efficient scale
Output quantity that minimizes total average cost
Economies of scale
- If outputs increase as long-run average cost declines
- Doubling input more than doubles the output
- Production becomes more efficient as number of goods produced increases
Diseconomies of scale
- If output increases as long-run average cost increases
- Doubling input less than doubles output
Constant returns to scale
- As output changes, long-run average costs stay the same
- Doubling input exactly doubles output
