Chapter 12 - The Costs of Production Flashcards
Total revenue
The amount that a firm receives from the sale of goods and services; calculated as the quantity sold multiplied by the price paid for each unit
Total cost
The amount that a firm pays for all of the inputs that go into producing goods and services
Profit
The difference between total revenue and total cost
Fixed costs
Costs that do not depend on the quantity of output produced
Variable costs
Costs that depend on the quantity of output produced
Explicit costs
Costs that require a firm to spend money
Implicit costs
Costs that represent forgone opportunities
Accounting profit
Total revenue minus explicit costs
Economic profit
Total revenue minus all opportunity costs, explicit and implicit
Production function
The relationship between quantity of inputs and the results quantity of outputs
Marginal product
The increase in output that is generated by an additional unit of input
Diminishing marginal product
A principle stating that the marginal product of an input decreases as the quantity of the input increases
Average fixed cost (AFC)
Fixed cost divided by the quantity of output
Average variable cost (AVC)
Variable cost divided by the quantity of output
Average total cost (ATC)
Total cost divided by the quantity of output
