Week 8 - Costs of Production Flashcards
Define ‘Total Revenue’?
the amount a firm receives for the sale of its output.
Define ‘Total Cost’?
the amount a firm pays to buy the inputs for production.
Define ‘Profit’ in terms of using the formula?
total revenue minus total cost (Profit = Total Revenue - Total Cost).
Define ‘Explicit costs’?
input costs that require an outlay of money by the firm.
Define ‘Implicit costs’?
input costs that do not require an outlay of money by the firm.
Define ‘Economic Profit’ in terms of using the formula?
total revenue minus total cost, including both explicit and implicit costs.
Define ‘Accounting Profit’ in terms of using the formula?
total revenue minus total explicit cost.
Define ‘Short run’?
a period during which at least one factor of production is fixed.
Define ‘Long run’?
the period needed for all factors of production to become variable.
What is the ‘Production function’ the relationship between?
the relationship between the quantity of inputs used to make a good and the quantity of output of that good.
What is the ‘Marginal product’?
the increase in output that arises from an additional unit of input
Define ‘diminishing marginal product’?
the property whereby the marginal product of an input declines as the quantity of the input increases
What are ‘Fixed costs’?
costs that do not vary with the quantity of output produced. Fixed costs are incurred even if the firm produces nothing at all.
What are ‘Variable costs’?
costs that vary with the quantity of output produced. Variable costs are the costs of inputs that a firm changes in the short run. A firm’s total cost is the sum of fixed and variable costs.
Define ‘Average total cost’ in terms of using the formula?
total cost divided by the quantity of output
Define ‘Average fixed cost’ in terms of using the formula?
fixed costs divided by the quantity of output.
Define ‘Average variable cost’ in terms of using the formula?
variable costs divided by the quantity of output.
What is the ‘Marginal cost’?
the increase in total cost that arises from an extra unit of production. Marginal cost tells us how much total cost will change as the firm alters its level of production.
What is the ‘Efficient scale’?
the quantity of output that minimises average total cost
Define ‘Economies of scale’?
the property whereby the long-run average total cost falls as the quantity of output increases.
Define ‘Diseconomies of scale’?
the property whereby long-run average total cost rises as the quantity of output increases.
Define ‘Constant return to scale’?
the property whereby the long-run average total cost stays the same as the quantity of output changes.
What is the ‘Marginal product of labour’?
The additional output a firm produces as a result of hiring one more worker.
What is the ‘Average product (AP) of labour’?
The total output produced by a firm divided by the number of workers, or output per worker.
