Theory of the firm; Costs, revenues and profits
Terms in this set (19)
The monetary payment made by a firm to an outsider to acquire an input
The income sacrificed by a firm that uses a resource it owns.
The sum of explicit and implicit costs, also equal to the firm's total opportunity costs.
Total fixed cost (TFC)
Costs that do not change as output changes; arise from the use of fixed inputs.
Total variable cost (TVC)
Costs that vary (change) as output changes; arise from the use of variable inputs.
Total cost (TC)
The sum of fixed and variable costs.
TC = TFC + TVC
Average fixed cost (AFC)
Fixed cost per unit of output.
AFC = TFC/Q
Average variable cost (AVC)
Variable cost per unit of output.
AVC = TVC/Q
Average total cost (ATC)
Total cost per unit of output.
ATC = AFC+AVC
Marginal cost (MC)
The change in cost arising from one additional unit of output.
MC = ∆TC/∆Q = ∆TVC/∆Q
Long-run average total cost
A curve showing the lowest possible average cost that can be attained for any level of output when all of the firm's inputs are variable.
Total product (TP or Q)
The total amount of product (output) produced by a firm.
Marginal product (MP)
The additional product produced by one additional unit of variable input.
MP = ∆TP/∆ units of variable input
Average product (AP)
Product per unit of variable input.
AP = TP/units of variable input
The total earnings of a firm from the sale of its output.
TR = P × Q
The additional revenue of a fi rm arising from the sale of an additional unit of output.
MR = ∆TR/∆Q
Revenue per unit of output.
AR = TR/Q
Total revenue minus economic costs (or total opportunity costs, or the sum of explicit plus implicit costs)
The minimum amount of revenue required by a firm so that it will be induced to keep running, which is that part of revenue that covers implicit costs, including entrepreneurship (after all explicit costs have been covered).