Week 4- chapter 7 notes Flashcards
Calculate Total Profit=
TR - TC
Total Revenue=
Price x Qty
Explicit costs-
Out of pocket costs.
Ex: payment to employees.
Implicit costs-
Cost associated w/ tradeoff.
Ex: We do something else w/ the money we put into the restaurant.
Accounting profit-
Only have explicit cost.
Total revenue - Explicit cost.
Economic profit-
Explicit + implicit cost.
Total revenue - Explicit - Implicit cost.
Fixed cost-
Cost of fixed resources that don’t change w/ amount produced. Unrecoverable. Maximum acceptable loss.
Ex: rent.
Variable cost-
Cost for variable resources that DO change as more or less is produced.
Ex: raw materials.
Law of Diminishing Marginal Returns-
As numbers of new employee increases, marginal product of an additional employee will go down.
Average total cost (ATC)-
(FC + VC)/ Qty.
Average variable cost (AVC)-
VC / Qty.
Marginal cost-
Additional cost of producing 1 more unit of output.
Short run-
Firm’s total cost can be divided into fixed costs. The maximum acceptable loss.
Long run-
When all costs are variable.
Economy of scale-
Brings down AC as firms becomes bigger.
