chapter 14 Flashcards
What is total revenue and how is it calculated
Total revenue is the amount a firm receives for the sale of its output. And its calculated by Product multiplied by quantity
Total revenue= P(product)*Q(quantity)
What is total cost and how is it calculated
Total cost is the total market value of inputs a firm uses (Capital cost + labor cost=total cost)
How is profit calculated
Total revenue - total cost
explicit costs
Input cost that require an outlay of money
implicit cost
Input cost that do not require an outlay of money by the firm
economic profit
Total revenue - total cost(including explicit and inplicit cost)
accounting profit
total revenue - total explicit cost
Production function
The relationship between the quantity of inputs used and the quantity of output produced.
marginal product
The amount increase in output from an additional unit of input
diminishing marginal product
The principle that adding more of a variable input to a fixed input will eventually produce less additional output.
If you add more cooks into a kitchen working on one stove evntually prod
fixed cost
cost that do not change based on the quantity of a output produced (e.g., rent, salaries).
variable cost
cost that changes based on the quantity of a output produced (e.g., materials, labor).
How is average total cost calculated
Total cost / Quantity of output
How is average fixed cost calculated
Fixed cost / by the quantity of output
How is average variable cost calculated
Variable cost / the quantity of output
Marginal cost
The increase in total cost that arises from an extra unit of production
efficient scale
The quantity of output that minimizes average total cost.
Economies of scale
The cost advantages that a firm experiences as it increases output, leading to lower average costs.
Diseconomies of scale
When a business grows so much that cost per unit increases
Constant returns to scale
A situation where increasing the scale of production does not affect the average cost per unit.
