Economics Chapter 13
Relationship between MC and ATC
When MC < ATC: ATC is falling. MC > ATC: ATC is rising. The MC curve crosses the ATC curve at its minimum
average fixed cost (AFC)
fixed cost divided by the quantity of output
total costs
fixed costs plus variable costs
implicit costs
input costs that do not require an outlay of money by the firm. ignored by accountants. accountants only care about what you pay out.
explicit costs
input costs that require an outlay of money by the firm. something the employer actually pays out
the cost of financial capital as an implicit cost
opportunity cost. interest income not earned on financial capital
total cost curve
shows the relationship between the quantity produced and total costs. Gets steeper as the amount produced rises.
total revenue
the amount a firm receives for the sale of its output. price x quantity = total revenue
marginal product
the increase in output that arises from an additional unit of input. change in the output due to a change in the input
total cost
the market value of the inputs a firm uses in production. anything involved in production ex: ingredients used for cookies, workers salaries, factory
constants return to scale
the property whereby long-run average total costs stays the same as the quantity of output changes
economy's of scale
the property whereby the long-run average total costs falls as the quantity of output increases
diseconomies of scale
the property whereby the long-run average total costs rises as the quantity or output increases
diminishing marginal product
the property whereby the marginal product of an input declines as the quantity of the input increases
efficient scale
the quantity of output that minimizes average total cost
production function
the relationship between quantity of inputs used to make a good and the quantity of output of that good. Gets flatter as production rises.
average total cost (ATC)
total cost divided by output. ATC curve is going to have a U shape
profit
total revenue minus total cost
economic profit
total revenue minus total cost, including both explicit and implicit costs
accounting profit
total revenue minus total explicit cost
Marginal costs (MC)
The increase in total cost that arises from an extra unit of production. Change in total cost over change in quantity
average variable cost (AVC)
Variable cost divided by the quality of output
fixed costs
costs that do not vary with the quantity of output produced. rent that caroline pays/somebodies salary --> hire somebody on salary - always make $80k
variable costs
costs that vary with the quantity of output produced. Fluctuates as level of output fluctuates. part time job --> paid by hours
total costs (economic costs)
explicit cost + implicit costs