# Shared Flashcard Set

## Details

Econ 1 Ch 9
Production Costs
74
Other
07/05/2011

Term
 Fixed Cost (FC) (define)
Definition
 a cost of production that does not change
Term
 Total Fixed Costs (TFC) (define)
Definition
 Sum of all fixed costs of production. these costs do not change with the amount or ate of the firm's production. (such as rent)TFC = TC-TVC
Term
 Total Cost (TC) (define)
Definition
 sum of fixed cost and total variable costThese costs are determined by adding the Total Fixed Costs and the Total Variable CostsTC=TFC+TVC
Term
 Variable Cost (VC) (define)
Definition
 a cost of production that vary depending on how much produced
Term
 Total Variable Cost (TVC) (define
Definition
 Sum of all Variable Costs of productions. also, increases slowly up to point A, then increases quickly due to the Law of Diminishing Returns.These costs vary according to how much the firm produces. Such as seeds, fertilizer and water for a farmer.TVC = TC-TFC
Term
 Total Costs (TC) (define)
Definition
 Sum of Total Fixed Costs and Total Variable Costs of production
Term
 Average Fixed Cost (AFC) (define)
Definition
 the way, on average, that the Total Fixed Costs change with change in Production. *will continue to decline as more units are produced. Will never have a minimum point, will never reach zero.formula: Total Fixed Costs/# units ProducedAFC=TFC/Q
Term
 Average Variable Costs (AVC) (define)
Definition
 the way, on average, that the Total Variable Costs change with change in Production.formula: Total Variable Costs/# units Produced. *will first decline because each extra worker produces more than the previous worked (increasing marginal returns), then when a minimum reached, will start to increase because each extra worker added from that point produces less than the previous one (Law of Diminishing Returns).AVC=TVC/Q
Term
 Average Total Cost (ATC) (define)
Definition
 Reflects the way, on average, that Total Cost change with change in Production.Formula: Total Cost/# units Produced
Term
 Total Revenue (formula)
Definition
 TR - Q x PTotal Revenue = Quantity x Price
Term
 Quantity (Q) (define)
Definition
 # of units produced
Term
 Price (P) (define)
Definition
 Price per unit
Term
 Explicity Costs (define)
Definition
 'out of pocket expenses', The actual payments a firm makes to its suppliers of inputs (i.e., land, labor and captial).
Term
 Opportunity Cost Doctrine
Definition
 assumption that explicit costs paid is the highest price in the market and the best price available.
Term
 Implicit Costs
Definition
 'opportunity costs'. The costs of using owners' own resources in their business as compared to the best alternatives available. The costs are calculated as the best alternative foregone. The opportunity costs of all the resources (i.e., land, labor and captial) that are supplied by the firm's owner(s).
Term
 Name the 3 types of Profit
Definition
 AccountEconomicNormal
Term
 Accounting Profit (define)
Definition
 calculated by subtracting explicit costs from total revenue.Formula: AP - TR-EC
Term
 Economic Profit (define)
Definition
 is calculated by subtracting both explicit and implicit costs from total revenue.Formula: EP = TR - (Explicit Costs +Implicit Costs)
Term
 Normal Profit (define)
Definition
 = to implicit costs. Only the profit which a firm earns equal to the opportunity cost of the resources contributed by the owners.Formula: NP = Accounting Profit - Economic Profit orNormal Profit - (TR-Explicit Costs) - TR-Explicit Costs-Implicit Costs) orNormal Profit - Implicit Costs
Term
 Name 3 types of Short-run Costs
Definition
 Total Fixed CostsTotal Variable CostsTotal Costs
Term
 TFC, TVC and TC have a geometric relationshipTrue or False
Definition
 True
Term
 The Law of Diminishing Returns
Definition
 progressive decrease in the marginal (per-unit) output of a production process as the amount of a single factor of production is increased, while holding the amounts of all other factors of production constant.Such as more works may increase production, but too many will become inefficient.Book: "each work produces less after point A than the previous worker, thus the TVC increases at an inreasing rate after paint A.
Term
 Marginal Costs (define)
Definition
 how total costs change with each extra unit produced
Term
 Output (aka)
Definition
 Quantity (Q)
Term
 Costs per-unit of Output in the Short-run (define)
Definition
 average costs change as output (q) changes.Average Fixed Costs (AFC) AFC = TFC/QAverage Variable Costs (AVC) AVC = TVC/Q
Term
 Increasing Marginal Returns
Definition
Term
 SRAC (stands for)
Definition
 Short Run Average Costs
Term
 LRAC (stands for)
Definition
 Long Run Average Costs
Term
 tangent (define)
Definition
 just touching
Term
 LRAC is tangent to
Definition
 all the SRAC curves (short run average costs curve options for one firm.
Term
 Three rules of the LRAC graphic expression
Definition
 No SRAC can lie below the LRAC. 2. The LRAC is tangent to the SRAC curves and shows the minimum cost of producing each unit from the respective short run average cost curve. 3. The LRAC just touches the minimum points of only those SRAC curves there the long-run is horizontal.
Term
 The horizontal part of the LRAC that just touches the minimum points of the SRAC curves is called
Definition
 constant returns to scale.
Term
 Constrant Returns to scale (define)
Definition
 the horizontal portion of teh LRAC that just touches the minimum points of the possible SRAC curves
Term
 the lowest point of the SRAC curve is called
Definition
 the optimum rate of output
Term
 The optimum rate of output (define)
Definition
 the lowest point on an SRAC curve. also the lowest ATC (Average Total Cost).
Term
 Optimum scale of plant (define)
Definition
 the point at which the SRAC and the lowest point of the LRAC meet.
Term
 Economies of scale (define)
Definition
 long run concept in which producers can change all costs to ensure the lowest per unit cost
Term
 As output changes how does LRAC (Long run average cost) respond
Definition
 as output increases, LRAC decreases (this state is known as increasing returns to scale or economies of scale. 2. Then LRAC becomes constant. this state is known as Constant Returns to Scale. 3. Eventually LRAC increases with output. This state is known as Decrease Returns to Scale or Diseconomies of Scale.
Term
 Decreasing Returns to Scale (define)
Definition
 the state in which LRAC (Long Run Average Cost) increases with output.
Term
 Diseconomies of Scale (define)
Definition
 the state in which LRAC (Long Run Average Cost) increases with output.
Term
 Constant Returns to Scale (define)
Definition
 The point at which LRAC (Long run Average Costs) is constant as output increases.
Term
 Economies of Scale (define)
Definition
 The state at which LRAC (Long Run Average Costs) decreases as output increases.
Term
 Economies of Scale (define)
Definition
 The state at which LRAC (Long Run Average Costs) decreases as output increases.
Term
 LRMC (stands for)
Definition
 Long Run Marginal Cost
Term
 LRTC (stands for)
Definition
 Long Run Total Cost
Term
 LRAC = (formula)
Definition
 LRTC/Output aka LRTC/Q aka Long-run Total Costs/Q
Term
 LRTC = (formula)
Definition
 LRAC x Output aka Long-run Average Costs x Output aka LRAC x Q
Term
 LRMC = (formula)
Definition
 change in Long-run Total Cost/Change in Output aka change in LRTC/Change Q
Term
 in Increasing returns to Scale the LRTC ______
Definition
 increases at a decreasing rate.
Term
 In increasing Returns to Scale the LRAC is ______ the LRMC
Definition
 above
Term
 In constant Returns to Scale the Lrac ____ the LRMC
Definition
 equals
Term
 If LRAC = LRMC, then the state is
Definition
 Constant Returns to Scale
Term
 If LRMC is < LRAC, then the state is
Definition
 Increasing Returns to Scale
Term
 If LRMC is > LRAC, then the state is
Definition
 Diseconomies of Scale
Term
 If LRTC increases at a constant rate then the state is
Definition
 Constant Returns to Scale
Term
 If LRTC increases at an increase rate, then the state is
Definition
 Diseconomies of Scale
Term
 In Diseconomies of Scale the LRTC _____
Definition
 increases at an increasing rate
Term
 In a state of Constant Returns to Scale, the LRTC
Definition
 increases at a constant rate
Term
 Dimensional Factor (define)
Definition
 one of two explination of economies of scale. As output increases, firms can upgrade, thereby allowing output to increase
Term
 Specialization define)
Definition
 one of two explinations of economies of scale. Fewere works must perform many tasks, as workforce increases workers can focus on a specific task thereby becoming more efficient.
Term
 Name two reasons for economies of scale
Definition
 1. specialization 2. dimensional factors.
Term
 Name 1 reason for diseconomies of scale
Definition
 managerial layers
Term
 Managerial Layers (define)
Definition
 the reason for diseconomies of scale. As firms get bigger, it hires more and more managers. Managers increase average cost faster than they increase output.
Term
 Would a firm operate in a diseconomy of scale
Definition
 yes, as with monopolies. Pharmaceutical firms can operate in decreasing returns to scale, yet enjoy huge profits.
Term
 When MC (Marginal Cost) decreases: AVC ______, AFC _______, and ATC _______
Definition
 AVC decrease, AFC decreases and ATC decreases
Term
 When MC (Marginal Cost) is minimum: AVC ______, AFC _______, and ATC ______
Definition
 AVC (Average Variable Cost) decreases, AFC (Average Fixed Cost) decreases, and ATC (Average Total Cost) decreases
Term
 When MC (Marginal Cost) increases: AVC ________, AFC ______, and ATC ________
Definition
 AVC (Average Variable Cost) decreases, then increases, AFC (Average Fixed Costs) decreases and ATC (Average Total Cost) decreases, then increases
Term
 When AVC (Average Variable Cost) decreases: MC ______, AFC _______, and ATC ______
Definition
 MC (Marginal Costs decreases, then increases, AFC (Average Fixed Cost) decreases, and ATC (Average Total Cost decreases.
Term
 When AVC (Average Variable Cost) is minimum: MC ____, AFC ____ and ATC ____
Definition
 MC (Marginal Costs increases, AFC (Average Fixed Cost) decreases, and ATC (Average Total Cost increases.
Term
 When AVC (Average Variable Costs increases: MC _____, AFC ______, and AVC ______
Definition
 MC (Marginal Costs increases, AFC (Average Fixed Cost) decreases, and ATC (Average Total Cost increases.
Term
 When ATC (Average Total Cost) decreases: MC ______, AFC _____, and AVC _______.
Definition
 MC (Marginal Cost) decreases, then increases, AFC (Average Fixed Cost) decreases and AVC (Average Variable Cost) decreases, then increases.
Term
 When ATC (Average Total Cost is minimum: MC ____, AFC _____ and AVC _____.
Definition
 MC (Marginal Cost) increases, AFC (Average Fixed Cost) decreases and AVC (Average Variable Cost) increases.
Term
 When ATC (Average Total Cost increases: MC ____, AFC _____ and AVC _____.
Definition
 MC (Marginal Cost) increases, AFC (Average Fixed Cost) decreases and AVC (Average Variable Cost) increases.
Term
 MC (Marginal Cost) decreases as MPP (Marginal Product Price)_______
Definition
 increases
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