Chapter 8: Cost of business Flashcards
(16 cards)
What is considered a Profit?
When total revenue is greater than total cost
What is considered a loss?
When total cost is greater than total revenue (TC >TR)
What are explicit costs?
Physical, out of pocket costs
What are implicit costs?
Things already owned and opportunity costs
What is the formula for accounting profit?
Total Revenue (PxQ) - Explicit costs
What is the formula for Economic Profit?
Total Revenue - (Explicit + Implicit Costs)
What is a rule of thumb for Economic and accounting profits?
Economic profit will always be less than Accounting profit
What is the production function?
Its the relationship between the inputs a firm uses and the outputs it creates
What is marginal product?
Change in output associated with one additional unit of an input;
Difference in output divide by change in input
What is diminishing marginal Product?
Increases in inputs are associated with a slower rise in outputs because facilities are fixed in the short run
What cost are considered by firms in the short run?
Variable and fixed costs
What costs are considered in the long run?
Variable costs, which can be reestablished through scales.
What are three types of scales that can occur in the long run?
Economies, Diseconomies, and return to scale
What does economies of scale mean?
That in the long run average total costs decline as outputs expand.
What does diseconomies of scale mean?
Average total cost increase as output expands
What does return to scale mean?
Average total cost remains constants a outputs expand
