Chapter 9 Flashcards
economic cost
A payment that must be made to obtain and retain the services of a resource
two types: explicit and implicit
explicit cost
The monetary payment made by a firm to an outsider to obtain a resource.
implicit cost
The monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market
accounting profit
the profit number that accountants calculate
total sales revenue - total explicit costs
what remains after a firm has paid its explicit costs
plant capacity
when companies need to adjust for change in demand, they need time to adjust for its plant capacity (machinery and equipment, size of factory building, and other capital resources).
economic profit
Total revenue - Explicit costs - implicit costs
long run
period long enough for a firm to adjust the quantities of all resources that it employs, including plant capacity
“variable-plant” period
short run
period is too brief for a form to alter its plant capacity
“fixed-plant period”
total product
total quantity, or total output, of a particular good or service produced
marginal product
the extra output or added product associated with adding one unit of a variable resource, in the case labor, to the production process
change in total product/change in labor input
Variable Costs
A cost that increases when the firm increases its output and decreases when the firm reduces its output.
Ex: Fuel, materials, power, transportation services, and most labor
Fixed Costs
Any cost that in total does not change when the firm changes its output
Ex: rent payments., interest on a firm’s debts, insurance premiums
Total cost
The sum of fixed cost and variable cost.
TC= TFC + TVC
Average fixed costs
A firm’s total fixed cost divided by output (the quantity of product produced).
AFC = TFC / output
AFC must declines as output increases
Average variable costs
A firm’s total variable cost divided by output (the quantity of product produced).
AVC = TVC/output
