Chapter 7 Flashcards
what are sunk costs?
Expenditure that has been made and cannot be recovered
what are total costs?
Total economic cost of production, consisting of fixed and
variable costs
what are fixed costs?
Cost that does not vary with the level of output and that can be eliminated only by shutting down
what are variable costs?
Cost that varies as output varies
what are marginal costs?
increase in cost resulting from the production of one extra unit of output
how do you calculate the average fixed cost (ATC)?
Firm’s total cost divided by its level of output.
how do you calculate the average fixed cost (AFC)?
Fixed cost divided by the level of output.
how do you calculate the average variable cost (AVC)?
Variable cost divided by the level of output
what is the user cost of capital?
annual cost of owning and using a capital asset, equal to economic depreciation plus forgone interest
how to calculate the user cost of capital?
economic depreciation + (interest rate)(value of capital)
what is the Isocost Line?
Graph showing all possible combinations of labour and capital
that can be purchased for a given total cost
what is the user cost of capital?
annual cost of owning and using a capital asset, equal to economic depreciation plus forgone interest
formula to calculate the user cost of capital:
economic depreciation + (interest rate)(value of capital)
