Chapter 8 Flashcards
(25 cards)
Profit
Results when total revenue is higher than total cost.
Loss
Results when total revenue is less than total cost.
Total Revenue
The amount a firm receives from the sale of goods and services.
Total Cost
The amount a firm spends to produce and or sell goods and services.
Profit or loss=
Total Revenue- Total Cost
Explicit Costs
Tangible out of pocket expenses
Implicit Costs
The costs of resources already owned which no out of pocket payment is made.
Total Cost=
Explicit Costs + Implicit Costs
Accounting Profit
Calculated by subtracting the explicit costs from total revenue
Economic Profit
Calculated by subtracting both the implicit and explicit costs of the business from total revenue.
Accounting Profit=
Total Revenue -Explicit Costs
Economic Profit=
Accounting Profit-implicit costs.
What is the average return for 1) Stocks, 2) Bonds, 3) Savings since 1928?
1) Stocks- 7 percent
2) Bonds- 3 Percent
3) Savings- 2 Percent
Output
The Production that a firm creates
Factors of production
The inputs (labor, land, and capital) used in producing goods and services.
Production Function
Describes the relationship between the inputs a firm uses and the output it creates.
Marginal Product
The change in output associated with one additional unit of input.
Diminishing Marginal Product
Occurs when successive increases in inputs are associated with a slower rise in output.
Variable Costs
Change with the rate of output
Fixed costs-0
Unavoidable costs that do not vary with output in the short run. Also known as overhead.
Total Cost=
Total Variable Costs + Total Fixed Costs.
Marginal Cost
The increase in costs that occurs from producing on e additional unit of output.
Scale
The size of the production process.
Efficient Scale
The output that minimizes average total cost in the long run.
