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Ch. 13 The Costs of Production
exam 2
27
Economics
Undergraduate 1
03/15/2011

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Term
total revenue
Definition
the amount a firm receives for the sale of its output
Term
total cost
Definition
the market value of the inputs a firm uses in production
Term
profit
Definition
total revenue minus total costs
Term
explicit costs
Definition
input costs that require an outlay of money by the firm
Term
implicit costs
Definition
input costs that do not require an outlay of money by the firm
Term
ecnomic profit
Definition
total revenue minus total cost, including both explicit and implicit costs
Term
accounting profit
Definition
total revenue minus total explicit cost
Term
production fuction
Definition
the relationship between quantity of inputs used to make a good and the quantity of output of that good
Term
production function
Definition
the relationship betweent eh quantity of inputs used and the quantity of outputs used to make a good
Term
marginal product
Definition
the increase in output that arises from an additional unit of input
Term
diminishing marginal product
Definition
the property whereby the marginal product of an input declines as teh quatity of the input increases
Term
total cost curve
Definition

- the relationship between quantity produced and total costs

- gets steeper as the quantity of output increases because of diminishing marginal product

Term
fixed cost
Definition
costs that do not vary with the quantity of output produced
Term
variable costs
Definition
costs that do vary with the quantity of output produced
Term
average total costs
Definition

- total cost divided by the quantity of output

- the sum of average fixed cost and average variable cost

Term
average fixed cost
Definition
fixed costs divided by the quantity of output
Term
average variable cost
Definition
variable cost divided by the quantity of output
Term
marginal cost
Definition

- the increase in total cost that arises from an extra unit of production

- MC = Change in total cost / change in quantity

Term
Rising Marginal Cost
Definition

- marginal costs rises with the quantity of output produced (hence property of diminishing marginal product)

- when quantity of a product produced is high, the marginal product of an extra unit of labor is low,a nd marginal cost of an extra unit of output is large

Term
U-shaped average total cost
Definition
the bottom of the U-shape occurs at the quantity that minimizes average total cost
Term
The Relationship between Marginal Cost and Average Total Cost
Definition

- whenever marginal cost is less than average total cost, ATC is falling. whenever MC is greater than ATC, ATC is rising.

- the MC curve crosses the ATC curve at its minimum

Term
economies of scale
Definition
the property whereby long-run average total cost falls as the quantity of output increases
Term
diseconomies of scale
Definition
the property wehreby long run average total cost rises as the quantity of output increases
Term
constant returns to scale
Definition
the property whereby long run average total cost stays teh same as the quantity of output changes
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