Chapter 8: Costs of Production Flashcards
What is an economic costs?
the cost of using resources to produce a product, which is an oppurtunity cost: the value or worth of the resources in its best alternative use
What are explicit costs?
the monetary payments that a firm makes to obtain resources from non owners of the firm
What are implicit costs?
the monetary payments that would have been paid for self-owned or self-employed resources if they had been used in their next best alternative outside the firm
What is normal profit?
an implicit cost and is the minimum payment that entreprenuers must recieve for performing the entreprenurial functions for the firm
What is economic profit?
the revenue a firm recieves in excess of all its explicit and implicit economic costs
What is total product?
the total quantity of output produced
What is marginal product?
the change made in total product from a change in a variable resources
What is average product?
the total product per unit of resource input
What is the law of diminishing returns?
as more untis of a variable resource are added to a fixed resource, beyond some point the marginal prodcut from each additional unit of a variable resource will begin to decline
What are total costs?
the sum of the firm’s fixed costs and variable costs
As output increases, what happens to fixed costs?
do not change
As output increases, what happens to variable costs?
they increase at a decreasing rate, and then increase at an increasing rate
As output increases, what happens to total costs?
increase at a decreasing rate, then increase at an increasing rate
What do average costs consist of?
average fixed costs, average variable costs, and average total costs
