Chapter 7 Flashcards
(26 cards)
Opportunity Cost
The cost of producing a good as
measured by the worth of the most valuable alternative
that was given up
Explicit Costs
The opportunity costs of production that
require a monetary payment
Implicit Costs
The opportunity costs of production that
do not require a monetary payment
Economic Profits
Total Revenue - Economic costs
Accounting profits
Total revenue - accounting costs
Economic costs
Explicit costs + Implicit costs
Zero economic profit
The firm is covering
both explicit and implicit costs
Sunk costs
Costs that have already been incurred
and cannot be recovered
Short run
a period too brief for some inputs to
be varied
Long run
a period over which all production inputs
are variable
Production Function
The relationship between the
quantity of inputs and the quantity of outputs produced
Total Product (TP)
the total output of a good produced
by the firm
Marginal Product (MP)
A change in total output that
results from a unit change in input
Diminishing marginal product
The
crowding of the fixed input with more and more of the
variable input
Fixed Costs
Costs that do not vary with the level
of output
Total Fixed Cost (TFC)
The sum of the firm’s fixed
costs
Variable Costs
Costs that vary with the level of
output
Total Variable Cost (TVC)
The sum of the firm’s
variable costs
Total cost (TC)
The sum of the total fixed costs and
total variable costs
Average costs (AC)
total costs spread over total output
Average total cost (ATC)
total cost divided by output
Average fixed cost (AFC)
fixed cost divided by output
Average variable cost (AVC)
variable cost divided by
output
Marginal cost (MC)
the change in total costs divided
by the change in quantity
