Costs of production Flashcards
What is explicit cost?
require outlay of money (ex: costs of oven, machine, food, …)
What is implicit costs
X don’t require outlay of money (stocks, real estate, bonds, …)
How to calculate total costs?
TC= implicit costs + explicit costs
Accounting profits formula?
Accounting profits = TR - explicit costs
Economic profits formula?
Economic profits = TR - explicit costs - implicit costs
Total profit formula
total profit = TR - TC
what is a normal rates of return in Economic profits
0 (it’s what’s expected)
total costs for the short-run formula
TCsr = TFC + TVC
total costs for the long-run formula
TClg = TVC
What is the name of the concept where the marginal product (MC) or an input declines as the quantity of the input increases?
Diminishing marginal product (/return)
what is Diminishing marginal product (/return)
when the marginal product of an input declines as the quantity of the input increases
Why does Diminishing marginal product (/return) happen?
because factory size is fixed and # employees/labor is variable… too much employees lead to a lost in output
Marginal cost formula ?
MC= △TC / △Q
what does MC looks like in a graph?
check marks
what does ATC looks like in a graph?
smiley face (u-shape)
when does an economies of scale happen?
when the cost decrease, but the output increase
ATC decrease, output increase
when does an diseconomies of scale happen?
when business become too big (management/communication issue)
ATC increase, output decrease (long-run)
what does SRATC stand for
short-run average total cost
How to calculate ATC
ATC = AFC + AVC
what does LRATC stand for
long-run average total cost
how to calculate ATC (similar to AVC)
ATC = TC/Q
how to calculate AVC (similar to ATC)
AVC = TVC/Q
how to calculate AFC (similar to AVC and ATC)
AFC = TFC/Q
when does quantity of the minimum efficiency cost happen?
when MC and ATC meet
