Ag. Econ. Chapter 6 Terms

Average cost is defined as cost incurred by the business in the current period divided by output or simply cost per unit of output

average cost

The fixed costs incurred by the business in the current period per unit of output. Average fixed costs are calculated as AFC = TFC/output or AFC= ATC - AVC.

average fixed costs

the level of output or total product produced by a business per unit of input used. Average physical product is calculated as follows: APP labor = output , labor, APP capital = output , capital, and so on.

average physical product

the level of revenue earned per unit of output. Average revenue is calculated as AR = revenue , output. Average revenue is also equal to the market price under the conditions of perfect competition. This suggests that the revenue the business receives per unit is identical no matter how much the business produces.

average revenue

Average total costs are cal-culated as ATC = TC , output or ATC = AFC + AVC

average total costs

level of output at which average total costs equal average revenue or market price.

breakeven

he change in total cost of produc-tion as the output or total product of the business is ex-panded. Marginal cost is calculated as MC = ∆ cost 4 , ∆ output. Marginal cost represents the total cost of producing another unit of output.

marginal cost

the change in the cost of a resource used in production as more of this resource is employed. Marginal input cost is set by the market for the resource.

marginal input cost

the change in output or total product the busi-ness would achieve in the current period by expanding the use of an input by another unit. Marginal physical product is calculated as MPP labor = ∆ output , ∆ labor, MPP capital = ∆ output , ∆ capital, and so on.

marginal physical product

relationship between output and the factors of production (labor, capital, land, and management).

production function

total revenue minus total expenses.

profit

level of output at which average variable costs equal average revenue or the market price.

shutdown

specific form of current production costs that do not vary with the level of output or input use. This is a short-run cost concept; all costs are consid-ered variable in the long run. Fixed costs are calculated by outside entities. Examples include the individual value of the business's current property tax bill, the insurance premium due this year, or the interest portion of the busi-ness's current mortgage payment.

fixed costs

market structure when one or more of the characteristics of perfect competition are not present.

imperfect competition

Consist of land, labor, capital, and management

input categories

as successive units of a variable input are added to a production process with the other inputs held constant, the marginal physical product eventually decreases.

law of diminishing marginal returns

the change in the revenue earned (from the production if the business is expanded). Marginal revenue is calculated as MR = ∆ revenue , ∆ output. Marginal revenue under conditions of perfect competition is identical to the price the business takes in the marketplace

marginal revenue

the change in the revenue earned by the busi-ness as it employs an additional unit of a resource, hold-ing other resource use constant. Marginal value product is calculated as MVP = MPP * market price of product

marginal value product

market structure characterized by a large number of producers selling a homogeneous product, each with perfect information, and no barriers to entry or exit.

perfect competition

represents the range of interest to economists. Why stop in stage I, and why produce in stage II?

stage II of production

sum of all individual categories of production costs during the current period. Total costs are calculated as TC = TVC + TFC.

total costs

sum of all current produc-tion costs that do not vary with the level of output or input use. Total fixed costs are calculated by adding up all individual fixed costs. Total fixed costs can also be measured residually by subtracting total variable pro-duction costs from total costs

total fixed costs

the total output of goods or services produced by the firm during the current period. The total product of a wheat farmer is the yield per acre multiplied by the number of acres harvested.

total physical product curve

sum of all money received by the business from the sale of the products it markets during the current period. Total revenue is calculated as TR = ( P corn * Q corn ) + ( P wheat * Q wheat ) + ... or the sum of the cash receipts from marketings of the business's individual products.

total revenue

sum of all individual cat-egories of production costs that do vary with the level of output or input use. Total variable costs are calculated by adding up all individual variable costs. Total variable costs can also be measured residually by subtracting total fixed costs from total costs.

total variable cost

level of specific current produc-tion costs that do vary with the level of output or input use. It is a short-run cost concept; all costs are considered variable in the long run. Variable costs are calculated by taking the price of the input multiplied by the quantity of the good or service used (i.e., hourly wage rate multiplied by the hours of hired labor employed by the business).

variable costs