Economics past class time
Average Total Costs
AVC+AFC=ATC or TC/Q
Economies of Scale
a reduction in costs resulting from large scale production
Law of Supply
any increase in price will cause suppliers to supply more and any decrease in price will cause a reduction in quantity supplied
Long Run Costs
costs in the long run represent increasing returns when firms utilize specialized machinery and labor, mass production, and technology to achieve economies of scales
Short Run Costs
costs in the short tun represent diminishing returns at some point of production as the output of a good service increases
Variable Costs
costs that change with changes in output ex. - labor - raw material AVC = TVC/Q
Sunk Costs
costs that have already been incurred and can't be recovered to any significant degree
Fixed Costs
costs that incur when producing nothing (total fixed costs = overhead) ex.- rent, interest, taxes, insurance, machinery AFC = TFC/Q
Elastic Supply
exists when producers significantly change production due to price changes
Supply Curve
graph showing relationship of quantity supplied at different price
Market Size
larger number of sellers effects those competing in the market ex.- DVD players
Resources Prices
price paid for materials and wages ex. increase in the minimum wage
Technology
production process may become more efficient thus shifting supply
Inelasticity of supply
Exists when regardless of price, producers are unwilling and unable to change supply ex. Hand Crafted Stone Sculpture
Accounting Profit
TR - Explicit Costs
Economic Profit
TR - Explicit Costs + Implicit Costs
Factor affecting elasticity of supply
ability to produce ($), Willingness to produce (opportunity cost), Length of time needed to produce (steak vs bread)
Price of other good
ex.- bread vs rolls; assume there is an increase in the price of rolls from $.75 to $1.50
Expectations
future expectations ex.- Farmers - corn
Taxes and Subsidies
may increase or decrease cost of production ex. excise tax
Total Costs
sum of fixed and variable costs Fixed + variable = total
Non price factors or determinants of supply
technology, resource prices, tax and subsidies, market size, expectation, price of other goods
Supply
the amount of a good or service a producer is willing and able to supply at various prices during a given period of time
Marginal Costs
the costs incurred by producing one more unit of output (allows the seller to determine profit ability of increasing or decreasing the production of one more unit)
Elasticity of Supply
the degree to which a good's supply is affected by changes in price