Microeconomics Ch 7 - Concepts
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