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23 Cards in this Set
- Front
- Back
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Basic assumption in economics |
profit motivated |
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Total opportunity cost |
explicit costs plus implicit costs |
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Normal profit |
minimum profit necessary to keep a firm in operation |
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Fixed profit |
any resource for which the quantity cannot change during the period of time under consideration |
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Short-run |
period of time so short that there is at least one fixed input |
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Long run |
period of time so long that all inputs are available |
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Production function |
relationship between the maximum amounts of outputs a firm can produce and various quantities of products |
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Law of diminishing returns |
beyond some point the marginal product decreases as additional units of a variable resource are added to a fixed factor |
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Total variable costs |
costs that are zero when output is zero and vary as output varies. wages, electricity, fuel, materials |
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Total fixed cost |
costs that do not vary as output varies and must be paid even if output is zero. rent, interest on loans, property taxes |
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Total cost |
sum of total fixed cost and total variable cost |
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Average fixed cost |
total fixed costs divided by the quantity of output produced |
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Average variable cost |
total variable cost divided by the quantity of output produced |
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Average total cost |
total cost divided by the quantity of output produced or average fixed cost plus average variable cost per-unit cost |
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Marginal cost |
change in total cost when one additional unit of output is produced |
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What is the shape of total cost determined by? |
variable cost because fixed costs don't change |
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Marginal cost is less than average cost |
average cost falls |
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Marginal cost is greater than average cost |
average cost rises |
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Marginal cost is equal to average cost |
average cost at minimum |
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Long run average cost curve |
traces the lowest cost per unit at which a firm can produce any level of output when the firm can build any desired plant size. planning curve |
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Marginal costs crosses average variable cost |
at its lowest |
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Average fixed costs declines |
as you produce more units |
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Marginal cost increases |
average variable cost increases |
