Mankiw Principles of Economics Ch.13

average total cost

total cost divided by the quantity of output

profit

total revenue - total cost

accounting profit

total revenue - total cost for explicit cost

economic profit

total revenue - total cost including both explicit and implicit costs

average variable cost

variable cost divided by quantity of output

average total cost is rising

whenever marginal cost in greater than average total cost

average total cost is falling

whenever marginal cost is less than average total cost

minimum

where marginal cost curve crosses average total cost curve

explicit costs

input costs that require an outlay of money by the firm

total cost

market value of the inputs a firm uses in production

economies of scale

property whereby long run average total cost falls as the quantity of output increases (specialization among workers)

diseconomies of scale

property whereby long run average total cost rises as the quantity of output increases (coordination problems arise)

constant returns to scale

property whereby long-run average total cost stays the same as quantity of output changes

diminishing marginal product

property whereby the marginal product of an input declines as the quantity of the input increases

efficient scale

quantity of output that minimizes average total cost

production function

relationship between quantity of inputs used to make a good and the quantity of output of that good

industrial organization

study of how firms' decisions about prices and quantities depend on market conditions they face

3 properties of cost curves

1. marginal cost eventually rises with the quantity of output 2. average total cost curve is u-shaped 3. marginal cost curve crosses average total cost curve at the minimum of average total costs

long run

all inputs are variable (firms can build more factories)

total revenue

amount a firm receives for the sale of its output

short run

some inputs are fixed (factories, land)

fixed costs

costs that do not vary with the quantity of output produced

variable costs

costs that vary with the quantity of output produced

average fixed cost

fixed cost divided by quantity of output

marginal product

increase in output that arises from an additional unit of input

marginal cost

increase in total cost that arises from an extra unit of production

implicit costs

input costs that do not require an outlay of money by the firm