Econ Chapter 13

marginal cost & formula

change in total cost from an additional unit of output change in TC / change in Q

Implicit costs

input costs that do not require expenses -opportunity cost

profit formula

total revenue - total cost

total cost formula

fixed cost + variable cost

explicit costs

input costs that require expenses -operating expenses (rent, salary)

economies of scale

long run ATC is falling as output increases

diseconomies of scale

long run ATC is increasing as output increases

increasing marginal cost

marginal cost rises as additional output is produced

diminishing marginal product

marginal product eventually falls as additional inputs are used

Total Cost definition & formula

market value of inputs a firm uses in production fixed cost + variable cost

the marginal cost curve intersects the average total cost curve at the

minimum of total cost

total revenue equals

price x quantity

Production Function curve

relationship between inputs and outputs

Total Cost Function

relationship between output & total cost

Total revenue definition & formula

the amount a firm receives for the sale of its output TR= P x Q

long run definition

time period that all costs are available

in the long run, a. inputs that were fixed in the short run become variable. b. inputs that were fixed in the short run remain fixed. c. inputs that were variable in the short run become fixed. d. variable inputs are rarely used.

A, inputs that were fixed in the short run become variable

For a firm, the production function represents the relationship between a. quantity of inputs and total cost. b. quantity of inputs and quantity of output. c. implicit costs and explicit costs. d. quantity of output and total cost.

B, quantity of inputs and the quantity of outputs

economies of scale occur when a firm's a. long-run average total costs are increasing as output increases. b. marginal costs are constant as output increases. c. long-run average total cost are decreasing as output increases. d. marginal costs are equal to average total costs for all levels of output.

C, long run average total cost decreases as output increases

total cost is the a. fixed cost less variable cost. b. amount a firm receives for the sale of its output. c. quantity of output minus the quantity of inputs used to make a good. d. market value of the inputs a firm uses in production.

D, market value of the inputs a firm uses in production.

average fixed cost

FC / Q

average total cost

TC / Q

accounting profit formula

TR - explicit costs

economic profit formula

TR-total explicit - total implicit

T/F: if a firm produces nothing, it still incurs fixed costs.

True

T/F:Accountants often ignore implicit costs

True

average variable cost

VC / Q

marginal cost tells us the a. amount by which output rises when labor is increased by one unit. b. amount by which total cost rises when output is increased by one unit. c. value of all resources used in a production process. d. marginal increment to profitability when price is constant.

amount by which total cost rises when output increases by one unit.

marginal product definition

change in output from an additional unit of input

fixed costs

costs that do not vary with the quantity of output produced ex: rent, salary

variable costs

costs that vary with the level of output produced ex: hourly wage, materials