Chapter 9 - Dec. Making Flashcards
Cash Expenses
- Interest in borrowed capital
- Wages for hired labor
- Purchased feed
- Cash rented land
- Seed, fertilizer, fuel, repairs
- Property Taxes
Non-cash Expenses
- Depreciation
- Interest on owned capital
- Value of operator labor
- Farm raised feed
- Owned land
Variable costs
are costs that will occur only if production takes place and
that tend to vary directly with the level of production
are those over which the manager has control
Fixed Costs
costs that will not change in the short run even if no
production takes place
exist only in the short run
Price Taker
Price takers produce identical products
Small companies
Must “take” the price established by the market
if MR > MC?
economic profit increases if output increases
the extra revenue from selling one more unit exceeds the
extra cost
if MR < MC?
economic profit increases if output decreases
the extra revenue from selling one more unit is less than the
extra cost to produce
MR = MC
economic profit decreases if output increases
or decreases
the extra revenue from selling one more unit is equal to the
extra cost to produce
AFC - AVC - ATC
AFC decreases as output increases
MC intersects AVC and ATC at their minimum
Production Rules for the Short Run
If P > ATC, produce and make profit
If ATC > Price > AVC, produce and minimize losses
If AVC > Price, do not produce
Long Run Costs
a business has time to expand the size of its operations, thus all costs are variable
Production Rules for the Long Run
Price > A T C: Continue to produce at the point where M R = M C.
Price < A T C: Stop production and sell fixed assets.
Returns to size
percent increase in output value (exceeds, equals, less) than percent increase in cost.
