Section5 Flashcards
What is Total Revenue?
The amount of money a firm receives for the sale of its output.
Define Total Cost.
The market value of all inputs a firm uses in production.
What is Economic Profit?
= Total Revenue - Total Cost
(includes both explicit & implicit costs).
Explain Opportunity Cost.
Benefit/value of the most valuable alternative forgone.
Example of Opportunity Cost
If Mark buys pizza instead of a drink & hamburger, the opportunity cost is the value of the drink and hamburger.
I mean, I think there exist better examples hahah, but i think this was in the slides
Define Explicit Costs.
Input costs that require a direct outlay of money by the firm.
Define Implicit Costs.
- Input costs that do not require a direct outlay of money.
- Example: owner’s time.
What is Accounting Profit?
Accounting Profit = Total Revenue - Explicit Costs.
Difference between Economic and Accounting Profit
Economists consider implicit costs; accountants do not.
Fixed vs Variable Costs
- Fixed Costs: Not dependent on output (e.g., rent)
- Variable Costs: Dependent on output (e.g., raw materials)
Total Cost formula (short run)
TC = TFC + TVC
note to self: add what these stand for here (or in a seperate card)
Marginal Cost (MC) formula
MC = ΔTC / ΔQ
Economies of Scale
Long-run average total cost falls as output increases.
Diseconomies of Scale
Long-run average total cost rises as output increases.
Learning Curve
Shows how production costs fall as experience and efficiency increase.
