Booklet 4 - Micro Flashcards
(32 cards)
Definition - fixed costs
costs that do not vary with output
- rent and advertising
Definition - variable costs
costs that do vary with output
- raw materials and packaging
- all costs become variable in the long run
Definition - semi-variable costs
fixed cost until a certain level of output is reached then turns variable
- energy
Equation - fixed cost per unit (average fixed cost )
Total fixed cost / Quantity
Equation - total variable cost
variable cost per unit / quantity
Equation - total cost
total fixed cost + total variable cost
Equation - unit cost
total cost / Quantity
Equation - average cost
average fixed cost + average variable cost
Definition - marginal cost
how much it cost the firm to produce an additional unit of output
Equation - marginal cost
change in total cost / change in output
Definition - imputed cost
opportunity cost for which no financial payment is made
- accounting profit but an economic loss
Equation - total revenue
Quantity x Price
- maximised when marginal revenue = 0
Equation - average revenue
Total revenue / Quantity
- decrease in AR downwards demand curve
Equation - marginal revenue
difference in total revenue level
Definition - Normal profit
Made enough profit to equal the next best alternative
Occurs when TR=TC
Definition - economic profit
Made more profit then the next best alternative
Definition - explicit costs
The fixed and variable costs that are actually paid
Definition - diminishing marginal returns
When an increase in one factor of production leads to smaller increase in output compared to the last increase
Definition - marginal returns
What is gained by adding one additional unit of a factor of production
Definition - total physical product
As the number of workers increase so does the output
Definition - marginal physical product
The increase in total physical product for each additional worker
Definition - increasing returns to scale
Increase in scale of operations leads to a more than proportionate increase in total output
Definition - average return
The amount of output produced per unit of a variable factor of production
Definition - economies of scale
Reduction in firms unit costs due to an increase in the scale of the firms operations or growth of the industry
