Chapter 13: The Costs of Production Flashcards
input costs that require an outlay of money by the firm ex. wages, rent, payments
Explicit Costs
input costs that do not require an outlay of money by the firm ex. interest foregone if the owner uses savings for his business. salaries foregone if the other does not pay himself a salary
Implicit Costs
Accounting Costs are
Explicit Costs
Economic Costs are
Explicit Costs+ Implicit Costs
Accounting Profit is
Total Revenue - Accounting Costs
Economic Profit is
Accounting Profit - Implicit Costs
too possibilities for economic profit include:
- it’s a positive
2.its a negative=a loss
Inputs of Production include..
a) Capital: office buildings, machinery, computers, equipment
b) Labor: anyone working for a firm
a Production Function calculates
quantity produced= capital x labor
all input sizes can be chosen including the factory size and factory location reflect
Production in the LR
the size of capital including the factory size is fixed; the factory has been already built
Production in the SR
when labor productivity is increasing:
-workers become more productive
-workers take less time
-labor cost is less
-labor cost will increase with output but increases less and less
when labor productivity is decreasing:
-workers become less and less productive
-workers take more time
-labor cost is more
-labor cost will increase with input, but increases more and more
MPL is
the change and increase in the output quantity
if MPL is increasing:
-labor productivity is increasing
-is due to division of labor
-output increases more with labor
if MPL is decreasing:
-labor productivity is decreasing
-is due to size of capital being fixed in the SR
-output increases less with labor
the part of the production cost which varies with the output quantity
Variable Cost (labor cost)
variable cost on average
Average Variable Cost
the fixed cost of rent a firm pays regardless of if it operates or doesn’t
Fixed Cost
fixed cost per unit on average
Average Fixed Cost
variable cost + fixed cost =
Total cost
TC per unit on average
Average Total Cost
change in TC
Marginal Cost
AVC calculation
VC / quantity
