chapter 6 Flashcards
(19 cards)
what is explicit cost?
it is the actual money expenditure on inputs or payments made to outsiders for hiring their factor service.
what is implicit cost?
It is the estimated value of inputs supplied by the owner including normal profit.
what is cost function?
The reaction between cost and output.
formula for cost function
C=f(q)
total fixed cost
fixed costs refer to those costs which do not very directly with the level of output.
total variable cost
variable cost refer to those costs which vary directly with the level of output.
why is the curve of total variable cost inverse s shaped?
due to law of diminishing utility
total costs
total costs is the total expenditure incurred by a firm on the factors of production required for the production of commodities.
average fixed cost
Average fixed cost refers to thee per unit fixed cost of production.
formula for average fixed cost
AFC=TFC/Q
average variable cost
Average variable cost refers to the per unit cost of production.
formula for average variable cost
AVC=TVC/Q
Average cost
average cost refers to the per unit total cost of production.
formula for average cost
- AC=TC/Q
- AC=AFC+AVC
marginal cost
marginal cost refers to addition in total cost when one more unit od output is produced.
formulas for marginal cost
- mc(n)=tc(n)-tc(n-1)
2.mc=change in total cost/ change in output
3.mc(n)=tvc(n)-tvc(n-1)
relationship between ac and mc
mc is less than ac, ac will fall with increase in output
mc=ac ac is constant
mc is more ac, ac will rise with increase in output
ac can fall when mc is rising but can not rise when mc is falling
relationship between avc and mc
mc is less than avc, ac will fall with increase in output
mc=avc ac is constant
mc is more avc, ac will rise with increase in output
relationship between ac, acc and mc
mc is less than ac and avc, both will fall with a rise in output
mc=ac=avc, ac=avc=constant
mc is more than ac and acc, both will rise with increase in output
