Microeconomics Ch 7 - Concepts

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Marginal cost

= Change in Total Cost / Change in Quantity

Diminishing marginal returns

At a given level of fixed costs, each additional input contributes less and less to overall production.

Total Cost

Vertical

Average Total Cost

= Total Cost / Quantity

Average Variable Cost

= Variable Cost / Quantity

A firm had sales revenue of $1 million last year. It spent $600,000 on labor, $150,000 on capital and $200,000 on materials. What was the firm's accounting profit?

Accounting profit = total revenues minus explicit costs = $1,000,000 - ($600,000 + $150,000 + $200,000) = $50,000.

Continuing from Exercise, the firm's factory sits on land owned by the firm that could be rented out for $30,000 per year. What was the firm's economic profit last year?

Economic profit = accounting profit minus implicit cost = $50,000 - $30,000 = $20,000.

Output

Horizontal


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