Cost Theory Flashcards
Important consideration in production is
Cost
_______ in the production process has a direct impact on cost
Inefficiency
refers to the desire to profit from a project, transaction, or material endeavor
Profit Motivation
_____ defined the profit motive in economics in his book “_____ of _____” as the human _______ to truck, barter and trade.
Adam Smith
The Wealth of Nations
proclivity
Henry Haslet argues if there is __ profit in producing an article, it indicates that the labor and capital spent on its creation are _____ _____.
no
being wasted
the primary mechanism by which markets overcome the profit maximization incentive of individual firms
Competition
is the total cost of all items purchased by your organization
Accounting Cost
the annual total of all costs associated with conducting business. They are input costs that require an outlay of money by the firm.
Explicit Cost
Economic cost is beneficial tool for making _____ _____
business decisions
enables you to examine a number of what-if situations and determine the precise impact on your organization
Economic Cost
determined by examining your current resources and estimating their prices, as well as the impact on your organization. They are input costs that do not require an outlay of money by the firm.
Implicit Cost
the difference between the revenue received from the sale of an output and the costs of all inputs used, as well as any opportunity costs
Economic Profit
a form of implicit cost that management determines and varies according to various events and perspectives.
Opportunity Cost
refers to the profit in business reports on its income statement.
Accounting Profit
Accounting profit is essential for companies’ ______ _______
financial transparency
Economic Profit is _____ _____ to regulators, investors, or financial institutions and is not required to be reflected on _______ _______.
not disclosed
financial statements
When faced with production level or other business alternatives, businesses and individuals make choices to ______ _____ ______.
prioritize economic profit
a sort of what-if analysis.
Profitability analysis
may be used to compare to the income that would have been gained had a different alternative been chosen.
Economic Profit
the creation or extraction of value
Entrepreneurship
Entrepreneurs are viewed as _____ _____
national assets
Great entrepreneurs have the capacity to ___ the ___ ____ ____ and work
alter the way we live
discoveries may raise _____ ____while also creating wealth from _____ _____ and contributing to a rising economy
living standards
entrepreneurial endeavors
costs that do not change with an increase or decrease in the amount of goods or services produced or sold
Fixed Cost
Fixed expenses are established by ____ ______ or _______.
contract agreements or timetables
corporate expenses that changes in proportion to how much a company produces or sells.
Variable Cost
Variable cost fluctuate according to the _____ and ____ _____ of the company
production and sales volume
are frequently used to minimize fixed expenses.
Shut down point
The ____ ____ of the business is comprised of both fixed and variable costs.
entire cost or total cost
mix of the two costs
Semi-variable, Semi-fixed, or Mixed costs
fixed cost per unit in producing a commodity. It is distributed as production expands over larger number of units.
Average Fixed Cost
variable cost per unit in producing a commodity
Average Variable Cost
the total cost per unit in producing a commodity.
Average Total Cost
AFC =
Total Fixed Cost / Units of Output
AVC =
Total Variable Cost / Units of Output
ATC =
Total Cost / Units of Output or AFC + AVC
is the additional to the total cost or total variable cost caused by producing an extra unit.
Marginal Cost
MC=
Total Cost n - Total Cost n-1 or Total Variable Cost n - Total Cost n-1
MC < AC or ATC, what happens to ATC?
ATC decreases
MC = ATC, what happens to ATC?
ATC is minimum and constant
MC > ATC, what happens to ATC?
ATC increases
MC < AVC, what happens to AVC?
AVC decreases
MC = AVC, what happens to AVC?
AVC is minimum and constant
MC > AVC, what happens to AVC?
AVC increases
Refers to money that has already been spent and cannot be recovered.
Sunk Cost
Sunk Costs are _____ from future businesses decision because the cost will ____ the ____ regardless of the outcome of the decision.
excluded
remain
same
