Chapter 7 Flashcards
opportunity costs, measuring costs, short-run costs, long run costs
What are explicit costs?
wages paid for labour, price of raw material, etc
What are implicit costs?
The opportunities foregone when using resources (ie the opportunity costs)
What are marginal costs?
The extra cost of producing an additional unit
What is average fixed cost?
The fixed costs of production divided by quantity of output produced
What is the average variable cost?
Variable costs divided by quantity produced
What is average costs?
The average variable costs plus the average fixed costs
How do taxed affect average cost and marginalcosts
Taxes only effect average variable costs and marginal costs, increasing both by the amount of the tax.
what is the wage rate?
how much each unit of labour costs for a given amount of time
What is the rental rate?
How much a unit of capital for a given amount of time
What three rules can be used to find the minimal cost?
- Lowest isocost rule
- Tangency rule
- Last dollar rule
What is the lowest isocost rule?
pick inputs where the lowest isocost line touches the isoquant
What is the tangency rule?
pick inputs where an isocost line is tangent to the isoquant
What is the last dollar rule?
The last dollar spent on an input should give you as much extra output as the last dollar spent on any other output
What is the shape of the average cost curve (AC) and what is it determined by in the short run?
In the short run, the AC curve is U shaped and determined by fixed cost and diminishing marginal returns
What is the shape of the average cost curve (AC) and what is it determined by in the long run?
In the long run, the AC curve has a variable shape, and is dependent on returns to scale
