Chapter 13
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)
