Chapter 13 - The Cost of Production Flashcards
1
Q
Total Revenue
A
- the amount a firm receives from the sale of its output
2
Q
Total Cost
A
- the market value of the inputs a firm uses in production
3
Q
Firm Profit
A
- a firm’s goal is to maximize profit
Profit = total revenue - total cost
4
Q
Explicit Costs
A
- require an outlay of money (e.g. paying money to workers)
5
Q
Implicit Costs
A
- do not require a cash outlay (e.g. the OC of the owner’s time)
6
Q
Accounting Profit
A
- total revenue minus total explicit costs
7
Q
Economic Profit
A
- total revenue minus total costs (explicit and implicit)
8
Q
A Production Function
A
- shows the relationship between the quantity of inputs used to produce a good and the quantity of output of that good
- represented by a table, equation, or graph
9
Q
Marginal Product
A
- of any input is the increase in output arising from an additional unit of that input, hold all other inputs constant
10
Q
Marginal Product of Labour (MPL)
A
- the increase in output per additional worker
- calculated by change in output / change in labour
- the slope of the production function
11
Q
Diminishing Marginal Product
A
- the marginal product of an input declines as the quantity of the input increases (other things equal)
12
Q
Marginal Cost
A
- the increase in Total Cost from producing one more unit
- usually rises as Quantity rises
= change in total cost / change in quantity
13
Q
Fixed Costs (FC)
A
- do not vary with the quantity of output
- e.g. cost of land
- always flat on a graph
14
Q
Variable Costs (VC)
A
- vary with quantity produced
- e.g cost of materials
- just under Total Cost Curve
15
Q
Total Cost (TC)
A
= Fixed Costs + Variable Costs
- largest curve on a graph
