27 terms

# Chapter 13: Production and Cost

###### PLAY
Depreciation
the fall in the value of the firm's capital, and accountants calculate it by using the IRS's rules, which are based on standards set by the Financial Accounting Standards Board
Firm's Opportunity Cost
The cost of the factors of production it employs
Explicit Cost
a cost paid in money
Economic Depreciation
an opportunity cost of a firm using capital that it owns-- measured as the change in the market value of a capital over a given period
Implicit cost
an opportunity cost incurred by a firm when it uses a factor of production for which it does not make a direct money payment
Economic Profit
a firm's total revenue minus total cost
Total cost
the sum of explicit and implicit costs and is the opportunity cost of production
Short Run
the time frame in which the quantities of some resources are fixed
Fixed resources
1. fixed factors of production
2. variable factors of production
Long Run
the limit frame in which the quantities of all resources can be varied
Sunk cost
The difference between the cost of the plant and the resale value
Total Product (TP)
the total quantity of a good in a given period
Marginal Product (MP)
the change in total product that results from a one-unit increase in the quantity of labor employed.
MP = change in TP/ change in Quantity labor
Increasing Marginal Returns
occur when the marginal product of an additional worker exceeds the marginal product of the previous worker
Decreasing Marginal Returns
when the marginal product of an additional worker is less than the marginal product of the previous worker.
Law of decreasing returns
a firm uses more of a variable factor of production, with a given quantity of fixed factors of production, the marginal product of the variable factor eventually decreases
Average Product (AP)
the total product per worker employed. Total product/Quantity of Labor
Total Cost (TC)
the cost of all the factors of production used by a firm
Total Fixed Cost (TFC)
the cost of the firm's fixed factors of production-- the cost of land, capital, and entrepreneurship
Total Variable Cost (TVC)
the cost of the firm's variable factor of production-- the cost of labor. TFC + TVC
Marginal Cost
the change in the total cost that results from a one-unit increase in output
Average Fixed Cost (AFC)
the total fixed cost per unit of output
Average Variable Cost (AVC)
total variable cost per unit of output
Average Total Cost (ATC)
total cost per unit of output. AFC + AVC
Economics of scale
a condition in which a firm increases its plant size and labor employed by the same %, its input increases by a larger % and its ATC decreases
Diseconomies of Scale
a condition in which, when a firm increases its plant size and labor employed by the same %, its output increases by a smaller % and its ATC increases
Constant Returns to Scale
a condition in which, when a firm increases its plant size and labor employed by the same % and its average cost remains constant