costs Flashcards
what is an accounting cost?
the direct costs of operating a buissiness
what is an opportunity cost
value of what a producer gives up by using an input
what is the economic cost?
sum of a producers accounting and opportunity costs
what is economic profit?
it is the total revenue minus the economic cost
what are fixed costs?
they are costs that do not vary with output. they are associated with fixed inputs
what are variable costs?
they are costs that do vary with output
what are sunk costs?
sunk costs are costs that cannot be recouped and therefore should not be considered if a firm is deciding whether or not to close or continue operating. they are always irrelevant
what are the total costs in the short run?
total cost is equal to fixed cost + variable costs
what does the FC curve look like in the short run?
it is always horizontal
what does the VC curve look like in the short run?
it changes with the amount of output but is always positive slope. the shape depends on the productivity of the variable input
what is the formula for the short run average costs?
SRAC = VC/Q + FC/Q = AVC + AFC
what occurs to the average fixed costs when the quantity rises?
as quantity rises the average fixed costs fall
what is the short run marginal cost?
the change in total cost brought about by a change in one unit of output
what is the formula for the short run marginal cost?
SRMC = change in total cost/ change in quantity = change in variable cost / change in quantity.
MC = dTC/dQ
are the short run costs minimal costs?
in general short run costs are not minimal costs for producing the various output levels as the capital is fixed so the producer does not have the flexibility of input choice so the firm may have to use non optimal input combinations
