Costs (new) Flashcards
What is the short run?
A time period when at least 1 FOP is fixed, all production takes place in the short run
What is the long run?
A time period when all FOPs can be changed, all planning takes place in the long run
What is total product?
Total quantity of output produced by the firm
What is marginal product?
Extra output coming from one additional unit of labour
What is average product?
Total quantity per unit of labour
What are economic costs?
The economic cost of producing a good is the opportunity cost of the firms production
What are explicit costs?
Costs to the firm that involve the payment of money
What are implicit costs?
Earnings that a firm could have had if it had employed the FOPs for another use or if it had hired or sold them to another firm
These account for opportunity costs
What are total fixed costs?
It is the total cost of the fixed asset that a firm uses in a given time period
It is a constant amount
They are the same even if the firm doesnt produce
What is total variable cost?
It is the total cost of the variable asset that a firm uses in a given time period
What is average fixed cost?
Fixed cost per unit of output
Average fixed cost falls as output increases due to total fixed costs being constant
How to calculate average fixed costs?
Total Fixed Costs / Quantity
What are average variable costs?
It is the variable cost per output
Tends to fall as output increases then starts to rise again as output further increases due to the law of diminishing average returns
How to calculate average variable costs?
Total variable cost / Quantity
What is average total cost?
It is the total cost per unit of output
Tends to fall as output increases
