Production and Costs Flashcards
(21 cards)
Profit =
Total Revenue -Total Cost
Minimizing Costs
Getting the maximum outputs for a given set of inputs
Explicit Cost
Out of pocket costs that are normally paid (rent)
Implicit Cost
Opportunity Costs
Accounting Profits
Revenue - Explicit Costs
Economic Profits
Revenue - (explicit and implicit) costs; Can be negative and still be successful
Zero Economic Profit
Good thing (normal profit); if EP = 0, AP must be positive
Fixed Resources
Don’t change as you produce more (ovens)
Variable Resources
Change with amount produced (ingredients)
Short Run
Company has at least 1 fixed resource
Long Run
All inputs are variable
Productivity vs. Production
Productivity = how much does 1 more worker add to output?; Production = level of output produced
Eventually, why do you get less additional output when you add more variable resources?
Because of fixed resources (law of diminishing returns)
Total Costs
Fixed Costs + Variable Costs
Marginal Costs
Change in TC / Change in Output
Average Variable Cost (AVC)
Variable Cost / Q
Average Fixed Cost (AFC)
Fixed Cost / Q
Average Total Cost (ATC)
Total Cost / Q
If MC > ATC
ATC rises
If MC < ATC
ATC falls
When should a firm shut down?
When price falls below average variable cost (AVC); Would rather have only fixed costs as a loss than fixed and variable costs
