Chapter 13 The costs of Production – Flashcards
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Profit
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Total Revenue - Total cost
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What is the economic goal of a firm?
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to maximize profit
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Cost of Production
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all costs of making a firms output of goods and service. includes explicit and implicit costs.
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Explicit Costs
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accounting cost, involves a direct money ammount
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Implicit Costs
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does not involve a direct money outlay but measures forgone alternatives.
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Accounting Costs
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explicit cost
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Economic Cost
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explicit + implicit cost
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What is implicit cost of attending college? Explicit?
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Implicit would be the money that you could make if you didn't attend college plus the actual cost of college. Explicit would just be the cost of college.
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Economic Profit
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Total Revenue- Economic Costs (explicit + implicit)
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Accounting Profit
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Total Revenue - Accounting Costs (explicit)
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What is considered to be a normal profit?
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zero economic profit
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Fixed Costs
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costs that DON'T vary with the quanity output produced. ex: insurance, property tax
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Variable Costs
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costs that DO change as the firm alters the quantity of output produced. ex: raw materials, laborwages
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Long Run production costs are
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a type of variable costs, the prices all change
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Short Run productions costs are
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fixed on capital, at least one cost is fixed
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Average Cost
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cost per unit of output
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Average Total Costs
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Total Costs / Total Quantity
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Average Fixed Costs
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Fixed Costs/ Quantity
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Average Variable Costs
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Variable Costs/ Quantity
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Marginal Costs
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Change in total cost/change in Quantity
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Do you want high or low ATC?
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low ATC
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Marginal costs rises along with
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the amount of output produced (diminishing marginal product) rises along with
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What shape is the ATC when graphed?
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u-shaped, it declines first and increases afterwards.
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Efficient Scale/ Firm
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1.the lowest part on a ATC graph, point where MC and ATC cross 2. the quantity that minimizes average total cost.
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Accounting Costs fall when
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Marginal Costs < Average Costs
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Average Costs rise when
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Marginal Costs > Average Costs
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Economics of Scale
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occurs when long- run Average Total Cost declines as quantity (output) increases. (left graph)
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Diseconomies of Scale
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occurs when long- run Average Total Cost rises as quantity (output) increase. (right graph)
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Constant Returns to Scale
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occurs when long-run Average Total Cost does not vary as output increases. (centered Graph)
