Chapter 13

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average fixed cost

fixed cost divided by the quantity of output

implicit Cost

input costs that do not require an outlay of money by the firm - Ex. Giving up your skill making money elsewhere, to run your own business.

Explicit Cost

input costs that require an outlay of money by the firm. - OC that require the firm to pay out some money ( workers wages, ingredients)

average variable cost

is the variable cost divided by the quantity of output

total revenue

the amount a firm receives for the sale of its output

marginal product

the increase in output (cookies) that arises from an additional unit of input (workers) - any input in the production process is the increase in the quantity of output obtained from one additional unit of that input

marginal cost

the increase in total cost that arises from an extra unit of production (MC = ^TC/^Q) tells us the increase in total cost that arises from producing an additional unit of output curve rises

total cost

the market value of the inputs a firm uses in production - the amount that the firm pays to buy inputs (TC= FC + VC)

economies of scale

the property whereby long-run average total cost falls as the quantity of output increases

constant return to scale

the property whereby long-run average total cost stays the same as the quantity of output changes

diseconomies of scale

the property whereby long-run average total costs rises as the quantity of output increase

diminishing marginal product

the property whereby, the marginal product of an input (workers) declines as the quantity of the input (cookies) increases

efficient scale

the quantity of output that minimizes average total cost - two forces are balanced to yield the lowest average total cost

production Function

the relationship between quantity of inputs (workers) used to make a good and the quantity of output (cookies) of that good - The line gets flatter as the number of workers increases, which reflects diminishing marginal product

industrial organization

the study of firms' decisions about prices and quantities depend on the market conditions they face

average total cost

total cost/ quantity of output (ATC = TC/Q) tells us the cost of a typical unit of output if total cost is divided evenly over all the units produced. curve is U-shaped

accounting profit

total revenue minus only the firms explicit cost

economic profit

total revenue minus total cost, including both implicit and explicit of producing goods and services sold

total cost

total sum is the sum of fixed and variable cost

economists

use both explicit and implicit cost when measuring a firms' cost

total-cost curve

Graph of the quantity produced (horizontal axis) and the total cost (vertical axis) line gets steeper as the quantity of output (cookies) increases b/c of diminishing marginal product

accountants

Measure the explicit costs for decisions -keep track of money that flows in and out of firm

what is a firm's profit?

The amount that the firm receives for the sale of its output (cookies) is called its TOTAL REVENUE

profit

a firms total revenue minus total cost. Profit = Total Revenue - Total Cost

opportunity Cost

an item refers to all those things foregone to acquire that item

fixed cost

costs that do not vary with the quantity of output produced (rent)

variable costs

costs that vary with the quantity of output produced (Total Cost - Fixed Cost = Variable Cost)


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