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IB Economics: Unit 6 (HL) - Costs, Revenues, and Profits
Terms in this set (39)
Period of time when at least 1 factor of production is fixed.
Period of time when all factors of production are variable.
factors of production that do not change in amount as the level of output changes
factors of production that change in amount as the level of output changes
The increase in output that arises from an additional unit of input
All the goods and services produced by a firm during a given period of time with a given amount of input
the average amount produced by each unit of a variable factor of production
Law of Diminishing Returns
When additional units of a variable input are added to fixed inputs after a certain point, the marginal product of the variable input declines.
Accounting (explicit) costs plus implicit costs
A nonmonetary opportunity cost
Actual payments a firm makes to its factors of production and other suppliers.
The sum of the fixed and variable costs for any given level of production
Total Fixed Costs
All costs that remain the same no matter how much is produced or sold.
Total Variable Costs
All production costs that change with the level of output
Costs per unit of output. Total Costs / Qty
Average Fixed Costs
Total Fixed Costs divided by quantity. AFC = TFC/Q
Average Variable Costs
Average amount of variable costs incurred per unit of goods produced. Is equal to Total Variable Costs divided by quantity sold, TVC / QTY
Average Total Costs
Total Costs divided by quantity. ATC = TC/Q
The cost of producing one more unit of a good
Short Run Average Costs
the minimum cost per unit of producing each level of output given factor prices and when at least one factor is fixed
Long Run Average Costs
a curve showing the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed
Increasing Returns to Scale
when increasing all inputs by the same proportion results in a total output to increase by a greater proportion
Decreasing Returns to Scale
when long-run average total cost increases as output increases: diseconomies of scale outweigh economies of scale
Constant Returns to Scale
A situation in which the long-run total cost increases proportionately with output, so average cost is constant
Internal Economics of Scale
the cost benefits that an individual firm can enjoy when it expands
Internal Diseconomies of Scale
higher long run average costs arising from a firm growing too large
External Economies of Scale
The cost benefits that all firms in the industry can enjoy when the industry expands.
External Diseconomies of Scale
factors beyond control of firm that raise costs as industry output increases
The amount of income generated from selling goods and services
The total amount of income generated from selling goods and services
The income received per unit of good sold.
The extra income received from selling 1 additional unit of good.
When a firm produces goods and services at a level where Marginal Revenue = 0
Income from sales - Cost of production
Total income from sales - Total cost of production
Price level where a firm decides whether to shutdown temporarily or to continue production. P = AVC
Price level where a firm is able to cover all of it's economic costs.
Profit Maximizing level of Output
Output level where Marginal Cost = Marginal Revenue
Marginal Cost = Marginal Revenue
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