Econ Ch. 12 The Costs of Production

Term
1 / 21
Total Revenue
Click the card to flip 👆
Terms in this set (21)
Total Revenue
-the amount a firm receives for it's total output
-quantity of output X price it sells output
Total Costs
-the amount a firm pays to buy inputs
Profit
-firms total revenue minus total cost
-TR-TC=P
Explicit Costs
-input costs that require an outlay of money by the firm
-opportunity costs that require firm to pay
-$1,000 to buy flour for cookie business
Implicit Costs
-input costs that do not require outlay of money by firm
-opportunity cost
-Let say Caroline is skilled with computers- she can $100 by working with programming. for every hour she works at her cookie shop, she gives up $100 for income
-opportunity cost of financial capital that has been invested in a business
Economic Costs
-total revenue minus total cost, including implicit+explicit costs.
-what motivates firms that supply goods and services
-a firm making positive economic profit will stay in the business
-when firm isn't making enough (eco profit is negative) business owners are failing to earn enough revenue to cover costs of production
Accounting Profit
-total revenue minus minus explicit cost
-usually larger than economic costs because it ignore the implicit costs
Production function (graph)
-the relationship between quantity of inputs used to make good and the quantity of output of that good
-# of workers hired and quantity of output produced
-production function gets flatter as # of workers increases, reflecting diminishing marginal product
Total-cost curve (graph)
-shows relationship between quantity of output (# of workers) and total cost of production
-total cost curve gets steeper as the quantity of output increases b/c of diminishing marginal product
-sum of fixed costs and variable costs
Marginal Product
-the increase in output that arises from an additional unit of input
-when # of workers goes from 1 to 2, they can produce 50 to 90 cookies= 40 marginal product
-as # of workers increases, the marginal product declines
Diminishing Marginal Product-as # of workers increases, the marginal product declines -the property whereby marginal product of input declines as the quantity of the input increases -there are more workers taking up space in kitchen, getting in each others way, therefore each additional worker can contribute fewer cookiesFixed Costs-costs that do not vary with the quantity of output produced -incurred even if firm produces nothing at all -how much rent someone pays to rent place to run buisness-cost does not change to rent -how much someone pays a bookkeeper to keep track of what's produced-his salary does not changeVariable Costs-Costs that vary with quantity of output produced -cost of coffee beans, milk, sugar, paper cups if you are producing coffee -salaries of worker who produce coffeeAverage Total Costs-total divided by the quantity of output -because total cost is the sum of fixed and variable cost, average total cost can be expressed as sum of average fixed cost and average variable cost -tells us the cost of a typical unitAverage Fixed Cost-fixed cost divided by quantity of outputAverage Variable Cost-variable cost divided by quantity of outputMarginal Cost-amount total cost rises when firm increases production by 1 unit of output -the increase in total cost that arises from an extra unit of production -change in total cost divided by change in quantity -rises as quantity of output produced increasesEfficient Scale-the quantity of output that minimizes average total costs -EX: scale is 5-6 cups at coffee factory. if it falls or rises, average total cost rises -levels of output are balanced to yield lowest average total costEconomies of Scale-the property whereby long-run average total cost falls as the quantity of output increasesDiseconomies of Scale-the property whereby the long-run average total cost rises as the quantity of output increasesConstant returns to Scale-the property whereby the long-run average total cost stays the same as the quantity of output changes