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test 2 notes

# test 2 notes - Ch 13 total revenue the amount a firm...

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Ch. 13 total revenue- the amount a firm receives for the sale of its output total cost- the market value of the inputs a firm uses in production Profit = Total revenue - Total cost. explicit costs- input costs that require an outlay of money by the firm implicit costs- input costs that do not require an outlay of money by the firm (interest forgone to start a business) Accountants do not count implicit costs, the way that economists do to calculate total cost\ accounting profit- total revenue minus total explicit cost economic profit- total revenue minus total cost, including both explicit and implicit costs production function- the relationship between quantity of inputs used to make a good and the quantity of output of that good marginal product- the increase in output that arises from an additional unit of input diminishing marginal product- the property whereby the marginal product of an input declines as the quantity of the input increases fixed costs- costs that do not vary with the quantity of output produced variable costs- costs that do vary with the quantity of output produced average total cost- total cost divided by the quantity of output Average total cost = Total cost/Quantity average fixed cost- fixed costs divided by the quantity of output average variable cost- variable costs divided by the quantity of output marginal cost- the increase in total cost that arises from an extra unit of production Marginal cost = Change in total cost/Change in quantity A rising MC curve indicates diminishing marginal product The bottom of the U-shape occurs at the quantity that minimizes average total cost. This quantity is sometimes called the efficient scale of the firm. efficient scale - the quantity of output that minimizes average total cost The intersection of MC and ATC is the minimum average total cost for a firm.

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Because many decisions are fixed in the short run but variable in the long run, a firm's long-run cost curves differ from its short-run cost curves. When long-run average total cost declines as output increases, there are said to be economies of scale. When long-run average total cost rises as output increases, there are said to be diseconomies of scale. When long-run average total cost does not vary with the level of output, there are said to be constant returns to scale.
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