Mankiw Principles of Economics Ch.13
average total cost
total cost divided by the quantity of output
profit
total revenue - total cost
accounting profit
total revenue - total cost for explicit cost
economic profit
total revenue - total cost including both explicit and implicit costs
average variable cost
variable cost divided by quantity of output
average total cost is rising
whenever marginal cost in greater than average total cost
average total cost is falling
whenever marginal cost is less than average total cost
minimum
where marginal cost curve crosses average total cost curve
explicit costs
input costs that require an outlay of money by the firm
total cost
market value of the inputs a firm uses in production
economies of scale
property whereby long run average total cost falls as the quantity of output increases (specialization among workers)
diseconomies of scale
property whereby long run average total cost rises as the quantity of output increases (coordination problems arise)
constant returns to scale
property whereby long-run average total cost stays the same as quantity of output changes
diminishing marginal product
property whereby the marginal product of an input declines as the quantity of the input increases
efficient scale
quantity of output that minimizes average total cost
production function
relationship between quantity of inputs used to make a good and the quantity of output of that good
industrial organization
study of how firms' decisions about prices and quantities depend on market conditions they face
3 properties of cost curves
1. marginal cost eventually rises with the quantity of output 2. average total cost curve is u-shaped 3. marginal cost curve crosses average total cost curve at the minimum of average total costs
long run
all inputs are variable (firms can build more factories)
total revenue
amount a firm receives for the sale of its output
short run
some inputs are fixed (factories, land)
fixed costs
costs that do not vary with the quantity of output produced
variable costs
costs that vary with the quantity of output produced
average fixed cost
fixed cost divided by quantity of output
marginal product
increase in output that arises from an additional unit of input
marginal cost
increase in total cost that arises from an extra unit of production
implicit costs
input costs that do not require an outlay of money by the firm