Econ Chapter 7 Flashcards
Explicit Costs
Opportunity cost of production that require a monetary payment
eg, out of pocket expenses like labour, materials, fuel etc
Implicit Costs
Opportunity cost of production that does not require a monetary payment
eg. Money could be spent elsewhere
Profit
Difference between the total cost and total revenue
Accounting Profits vs Economic Profits
Accounting profits are determined by total revenue minus total cost
Economic profits are determined by total revenue minus all costs (Implicit and Explicit)
Sunk Costs
Costs that have been incurred and cannot be recovered
Short run production vs long run production
Short run - a period to brief for some production inputs to be varied
Long run - A period over which all production inputs are variable
Total Product
The total output of a good produced by a firm
Diminishing Marginal Product
as a variable input increases, with other inputs fixed, a point will be reached where the additions to output will eventually decline
Marginal Product
The change in total product resulting from a unit change in input
Total Cost
Sm of all total fixed costs and total variable costs
Why do cost curves shift?
When either input prices, taxes and technology change
Diseconomies of Scale
When the long run average total costs rises as output expands
Constant Returns to Scale
When the long run average total costs do not vary with output
Economies of Scale
When the Long Run Average Total Costs falls as output increases
Relationship Between Marginal Cost and Average Variable Cost
When AVC is falling, marginal cost must be less than average variable cost
When AVC is rising, marginal cost is greater than average variable cost.
