Chapter 8: Measuring Costs in Health and Health Care Sector Flashcards
Input costs that require a direct outlay of money by the medical firm.
Explicit Costs
Input costs that do not require a direct outlay of money by a firm.
Implicit Costs
The amount lost by not using the resources in its best alternative use.
Opportunity Cost
____ consider only the explicit costs
Accountants
____ consider both explicit costs and implicit costs
Economists
Expenses plus depreciation charges for capital
Accounting Cost
Accountants tend to take a ______ perspective, and only recognize costs when they are ALREADY made and properly recorded.
Retrospective (Look at things in the past that were previously recorded)
Costs to a firm utilizing resources in production, including opportunity cost.
Economic Cost
Economists take a _____ _____ perspective.
Forward Looking
The difference between economic costs and accounting costs is
Opportunity cost
The expenditure that has been made and cannot be recovered
Sunk Cost
A time horizon over which the quantity of at least one factor input used in production process is FIXED
Short-Run
This is the costs of production that does not vary with level of output or the cost paid by a firm in the business regardless of the level of output.
Total Fixed Costs (TFC)
Costs that vary with output
Total Variable Costs (TVC)
The sum of fixed costs and variable costs at each output level
Total Costs
What is the formula for Total Costs
TC=TFC+TVC
The way various measures of cost vary with the production level
Cost Structure
These are additional costs incurred from producing one additional unit of output.
Marginal Costs
The formula for Marginal Costs
The changes in total cost divided by the change in output produced.
MC = ∆TC/∆Q
The total fixed cost divided by the number of units produced
Average Fixed Costs
Formula for Average Fixed Costs
AFC = TFC/Q
The total variable cost divided by the number of units produced
Average Variable Costs
Formula for Average Variable Costs
AVC = TVC/Q
The total of all fixed and variable costs divided by the number of units produced.
Average Total Cost
Also refers to the cost per unit of output
Average Total Cost
Formula for Average Total Costs
ATC = TFC + TVC / Q
-or-
ATC = TC / Q
A time period over which all inputs in the production process are variable
Long-Run
The LAC of producing a given level of outupt is always the lowest point of the _________
Short-Run Average Total Cost
The LAC is the curve ____ to each short-run average cost
Tangent
The U-Shape of the short run AC is based on
The law of Diminishing productivity
The u-Shape of the long run cost curve is based on the concepts of
Long-run Economies and Diseconomies of Scale
Refers to the notion that average costs fall as a medical firm gets physically larger due to specialization to labor and capital
Long-Run economies of scale
When the average cost of production increases with the level of output.
Diseconomies of scale
Measures the change in long-run total cost from a given change in output
The Long-run Marginal Cost
The difference between total revenue and explicit cost
Business Profit
The difference between total revenue and both explicit and implicit costs
Economic Profit
TR>TC
Profit
TR<TC
Loss
TR=TC
Break-even
Loss
TR<TC
Profit
TR>TC
Break-Even
TR=TC
When P>ATC, a firm is
Earning Proft
When P=ATC, a firm is
Breaking-even
When TR=TC
Profit is Zero
A firm should not shut down when
P>AVC
The two Shutdown Points
P=AVC
P<AVC
Optimum Productivity is found when
Marginal Costs = Price
The curve of the TVC is caused by
The diminishing returns
Total Variable Cost has zero value when ____ is also zero
output
Total Variable Cost increases when _____ increases
output
The _____ ______ curve starts the same point as the Total Fixed cost curve.
Total Cost
The area between the TC and the TVC is the ______
TFC
The AFC curve is continuously ______ as output ______, but (Does or Does not) touch the horizontal axis.
Declining; expands; does not
