Costs and Production Flashcards
production function
a technological relationship expressing the maximum quantity of a good attainable from different combinations of factor inputs
marginal physical product (mpp)
the measure of this added output as labor increases
normal profit
the opportunity cost of capital
economic costs
payments a firm must make or incomes it must provide to resource suppliers to attract those resources away from their best production opportunities
implicit cost
has opportunity cost; the cost of resources for which no payment was made
explicit cost
a bill; can be identified by the accountant with a paper trail denominated in dollars
economic cost calculation
explicit cost+implicit cost
economic profits
total revenue less total costs return to owners above normal profits total revenue-its opportunity cost of production
accounting profits
total revenue-explicit costs used to determine taxable income
fixed costs
those costs who don’t vary with changes in short-run output must be paid even if you do not make money
variable costs
those costs which change with level of output, including payment for materials, fuel, power, transportation, and labor
short run
a period of production during which some inputs cant be varied
long run
a period of production long enough for all inputs to be varied
marginal physical product
change in total product that results from a 1 unit increase in the quantity of labor employed, with all other units remaining the same
marginal physical product calculation
change in total product/change in variable product
diminishing marginal returns
when marginal physical product of an additional worker is less than the marginal physical product of the previous worker
marginal cost (mc)
the increase in total cost associated with a one-unit increase in production
average product calculation
total products/units of labor
total cost calculation
sum of fixed+variable costs
marginal cost calculation
change in total/change in output
average fixed cost
total fixed cost per unit of output
average fixed cost calculation
total fixed cost/Q
average variable cost
total variable cost per unit of output
average variable cost calculation
total variable cost/q
average total cost
total cost per unit of output
avg calculation
tc/q or afc+avc
position of short run curves depend on
technology and price of productive resources
the long-run average cost curve
is the relationship between the lowest attainable average total cost and output when both the plant size and labor are varied
economies of scale
reductions in minimum average costs tht come through increases in the size (scale) of plants and equipment
diseconomies of scale
if the plant size gets too big, however, long-run average costs begin to rise,
production efficiency
goods produced in the least costly way
