Costs Flashcards
Accounting costs
The exact amount paid in expenses when producing a good or providing a service
Economic costs
Accounting costs + Opportunity costs
Opportunity costs
The value of the next best activity that you now can no longer afford
Fixed costs
Costs that does not vary with the level of output in the short run (the costs of all fixed factors of production)
Variable costs
Costs that varies with the level of output in the short run (the costs of all variable factors of production)
Total Cost
All economic costs of production; The sum of fixed and variable costs
Average Fixed Costs
Total fixed cost divided by the quantity of output
Average Variable Costs
Total variable cost divided by the quantity of output
Average Total Costs
Total cost divided by the quantity of output
Marginal Costs
Change in total costs that results from a one-unit change in output. The additional production cost of the last produced
Minimum cost for a given level of output
MPL/w = MPK/r
Increase in output resulting from the last Rand spent
Output Expansion Path
The locus of tangencies (minimum cost input combinations) traced out on an isoquant line of given slope as it shifts outwards into the isoqaunt map for a production process
The learning curve
- Measures impact worker’s experience on costs of
production - New firms experience learning experience, not
economies of scale - Older firms small gains from learning
Isocost line
A set of input bundles, each of which cost the same ammount
