Ch.13 AP Microeconomics (The Costs of Production)

Terms	Definitions
Profit	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.
Interest	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.
falling	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