Chapter 8 - Short-Run Costs and Output Decisions Flashcards Preview

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Flashcards in Chapter 8 - Short-Run Costs and Output Decisions Deck (15):
1

fixed cost

Any cost that does not depend on the firms’ level of output. These costs are incurred even if the firm is producing nothing. There are no fixed costs in the long run.

2

variable cost

A cost that depends on the level of production chosen.

3

total cost (TC)

Total fixed costs plus total variable costs.

4

total fixed costs (TFC) or overhead

The total of all costs that do not change with output even if output
is zero.

5

average fixed cost (AFC)

Total fixed cost divided by the number of units of output; a per-unit measure of fixed costs.

6

spreading overhead

The process of dividing total fixed costs by more units of output. Average fixed cost declines as quantity rises.

7

total variable cost (TVC)

The total of all costs that vary with output in the short run.

8

total variable cost curve

A graph that shows the relationship between total variable cost and the level of a firm’s output.

9

marginal cost (MC)

The increase in total cost that results from producing 1 more unit of output. Marginal costs reflect changes in variable costs.

10

average variable cost (AVC)

Total variable cost divided by the number of units of output.

11

average total cost (ATC)

Total cost divided by the number of units of output.

12

perfect competition

An industry structure in which there are many firms, each small relative to the industry, producing identical products and in which no firm is large enough to have any control over prices. In perfectly competitive industries, new competitors can freely enter and exit the market.

13

homogenous products

Undifferentiated products; products that are identical to, or indistinguishable from, one another.

14

total revenue (TR)

The total amount that a firm takes in from the sale of its product: the price per unit times the quantity of output the firm decides to produce (P * q).

15

marginal revenue (MR)

The additional revenue that a firm takes in when it increases output by one additional unit. In perfect competition, P = MR.