Economics past class time

Average Total Costs

AVC+AFC=ATC or TC/Q

Economies of Scale

a reduction in costs resulting from large scale production

Law of Supply

any increase in price will cause suppliers to supply more and any decrease in price will cause a reduction in quantity supplied

Long Run Costs

costs in the long run represent increasing returns when firms utilize specialized machinery and labor, mass production, and technology to achieve economies of scales

Short Run Costs

costs in the short tun represent diminishing returns at some point of production as the output of a good service increases

Variable Costs

costs that change with changes in output ex. - labor - raw material AVC = TVC/Q

Sunk Costs

costs that have already been incurred and can't be recovered to any significant degree

Fixed Costs

costs that incur when producing nothing (total fixed costs = overhead) ex.- rent, interest, taxes, insurance, machinery AFC = TFC/Q

Elastic Supply

exists when producers significantly change production due to price changes

Supply Curve

graph showing relationship of quantity supplied at different price

Market Size

larger number of sellers effects those competing in the market ex.- DVD players

Resources Prices

price paid for materials and wages ex. increase in the minimum wage

Technology

production process may become more efficient thus shifting supply

Inelasticity of supply

Exists when regardless of price, producers are unwilling and unable to change supply ex. Hand Crafted Stone Sculpture

Accounting Profit

TR - Explicit Costs

Economic Profit

TR - Explicit Costs + Implicit Costs

Factor affecting elasticity of supply

ability to produce ($), Willingness to produce (opportunity cost), Length of time needed to produce (steak vs bread)

Price of other good

ex.- bread vs rolls; assume there is an increase in the price of rolls from $.75 to $1.50

Expectations

future expectations ex.- Farmers - corn

Taxes and Subsidies

may increase or decrease cost of production ex. excise tax

Total Costs

sum of fixed and variable costs Fixed + variable = total

Non price factors or determinants of supply

technology, resource prices, tax and subsidies, market size, expectation, price of other goods

Supply

the amount of a good or service a producer is willing and able to supply at various prices during a given period of time

Marginal Costs

the costs incurred by producing one more unit of output (allows the seller to determine profit ability of increasing or decreasing the production of one more unit)

Elasticity of Supply

the degree to which a good's supply is affected by changes in price