CH 12 Flashcards
(22 cards)
Profit =
Total Revenue - Total Cost
Revenue =
Price × Quantity
Total Cost =
Fixed Costs + Variable Costs
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; include fixed and variable costs
Implicit costs
Costs that represent
forgone opportunities
that could have generated
revenue; opportunity costs.
Accounting profit =
Total revenue – Explicit costs
Economic profit =
Total revenue – Explicit costs – Implicit costs
Production function
Describes the relationship
between quantity of inputs
and the resulting quantity of
outputs.
Marginal product
The increase in output that is generated by an additional unit of input.
Diminishing Marginal Product
Holding all other inputs constant, the marginal product of a particular input
decreases as the quantity of that input increases.
Average fixed costs (AFC) =
Fixed Costs / Quantity
Average variable costs (AVC) =
Variable Costs / Quantity
Average total costs (ATC) =
Total Costs / Quantity = AFC+AVC
Marginal cost (MC) =
(change in) Total Costs / (change in) Quantity
Efficient scale
The quantity of output where average total cost is minimized.
Economies of scale.
If increasing the quantity of output (or scale of production) decreases the
average total cost
Diseconomies of scale.
If increasing the quantity of output increases the average total cost
There are constant returns to
scale.
If the average total cost does not depend on the quantity of output
In short run
some costs are fixed
In long run
could consider all costs as
variable costs
