Ch.13 AP Microeconomics (The Costs of Production)
Total Revenue - Total Cost or in symbolic terms P = TR - TC.
|Explicit costs|| |
Input costs that require an outlay of money by the firm (e.g. rent). Money that actually leaves a firm in the productive process. Distinguish from implicit costs.
|Total revenue||The total amount of money a firm receives by selling goods or services symbolized by TR.|
|Total Cost||The market value of ALL the inputs a firm uses in production, symbolized by TC, is calculated by adding fixed costs and variable costs. Also depends on accounting perspective and economic perspective.|
|Implicit costs||Input costs that do not require an outlay of money by the firm (e.g. interest forgone on money used). The opportunity costs associated with a firm's use of resources that it owns.|
A large amount of money losses implicitly can be the cost of capital (investment), by buying the capital you forgo _______ you could have gained.
|Accounting profit|| |
Total revenue minus total explicit cost, Profit will equal more than 0 in this calculation.
|Economic profit|| |
Total revenue minus total cost, including both explicit and implicit costs, in this view profits are usually not as large as accounting profit.
|Production function||The relationship BETWEEN quantity of inputs (usually worker) used to make a good and the quantity of output(product or services) of that good. Gets flatter as input inceases.|
|Marginal Product||The increase in output that arises from an additional unit of input( usually a worker acts as the unit of input).|
|Diminishing Marginal Product||The property whereby the marginal product of an input declines as the quantity of the input increases. Makes the production function level off after a while. Makes sense because the firm may become more crowded which reduces overall efficiency.|
|Total cost curve||A graph that shows the relationship between total variable cost and the level of a firm's output. Gets steeper as the amount produced increases.|
|Fixed costs|| |
Expenses that remain the same for a period of time; must be paid regardless of the quantity of a good or service produced/sold. Like rent., salary ,etc,.
|Variable costs||Costs that change directly with the amount of production (e.g. energy supply and labor costs).|
|Industrial Organization||The study of how firms' decisions about prices and quantities depend on the market conditions they face. An example of questions that this can answer is : "How does the number of firms in a industry affect the prices in a market and the efficiency of the outcome.|
|average total cost||Total cost divided by the quantity of output produced. Decreases in a somewhat parabolic rate.|
|average fixed cost||Fixed cost divided by the quantity of output. Decreases at a somewhat parabolic shape.|
|average variable cost||Variable cost divided by the quantity of output. Always rises at a constant rate.|
|marginal cost||the increase in total cost that arises from an extra unit of production, Always rises at a pretty constant rate.|
|Efficient scale||The quantity of output that minimizes average total cost, is at the bottom of the ATC curve which happens to be an intersection with the MC curve.|
Whenever marginal cost is less than average total cost, average total cost is ________
|rising||Whenever marginal cost is more than average total cost, average total cost is ________|
|economies of scale||The property whereby long-run average total cost falls as the quantity of output increases (left-most downward sloping part of the long-run ATC). Arises because higher production levels allow specialization among workers, allowing each of them to get better at a specific task.|
|diseconomies of scale||The property whereby long-run average total cost rises as the quantity of output increases (right-most upward sloping part of the long-run ATC). Usually arise because of coordination problems.|
|constant returns to scale||The property whereby long run average total cost stays the same as the quantity of output changes|
Flickr Creative Commons Images
Some images used in this set are licensed under the Creative Commons through Flickr.com. Click to see the original works with their full license.
- "Profit" image
- "Explicit costs" image
- "Interest" image
- "Accounting profit" image
- "Economic profit" image
- "Fixed costs" image
- "falling" image
This product uses the Flickr API but is not endorsed or certified by Flickr.