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*Production and Cost Analysis

Terms in this set (14)

firm
economic institution that transforms factors of production into goods and services (firms maximize profits)
profit =
total revenue - total cost
fixed costs
costs that are spent and cannot be changed in the period of time under consideration (don't change with output)
variable costs
costs that change as output changes (depend on the quantity, Q, produced)
average (total) cost =
total cost/quantity
average fixed cost =
fixed cost/quantity
average variable cost =
variable cost/quantity
marginal cost
the increase (decrease) in total cost from increasing (decreasing) the level of output by 1 unit
AFC isn't
changing, often not drawn since AFC is also represented by the distance between the AVC and ATC (it's downward sloping when drawn)
AVC is
U-shaped (starts out downward sloping, eventually upward sloping since cost and productivity are inversely related. for smaller quantities: more variable inputs = increased productivity = decreasing costs. for larger quantities; more variable = less productive = increasing costs)
ATC =
AVC + AFC (distance between ATC and AVC. Remember: ATC-AVC= AFC)
marginal cost curve
-cost of each additional unit of output
-technically: slope of TC
-when MC is lower than (below) the ATC: ATC is decreasing
-when MC is higher than (above) the ATC: ATC is increasing
MC crosses AVC and ATC at their minium because
**FILL OUT LATER**
cost curves check
-AFC is downward sloping
-AVC is U-shaped
-ATC is U-shaped, gets increasingly close to AVC
-MC crosses AVC and ATC at their lowest points
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