B ECON 300: Ch 7 Costs

a firm's total revenue minus its economic cost

a firm's total revenue minus its accounting costs

a cost that, once paid, the firm cannot recover
-usually f_____, about the p____
-should NOT affect decision making

-may be associated with other REAL costs:
1. __________________ content: expenditure "sunk" in a past investment may suggest additional costs required in the future
2. _______________ content: sometimes, when investments are publicly known, it may be rational to "finish what you start"
3. F_______________ and Time Constraints: large past expenditures may preclude future expenditures on new projects, may make investment a "one-shot" choice

capital that cannot be used outside of its original application (EX: space-themed restaurant equipment

the money a firm earns from selling its output

the cost a firm incurs in producing its output

the mistake of letting sunk costs affect forward-looking decisions

the cost of inputs that vary with the quantity of the firm's output

the sum of a firm's fixed and variable costs

-will have ______ shape as the variable cost curve but it will be shifted up at each level of output by the amount of _______ costs

the mathematical relationship between a firm's production costs and its output

-measured over a particular time period
-What's on X axis? Y axis?

-Describe the FC curve? What is the VC slop like?

a firm's fixed cost per unit of output; what's the equation? this falls as output ______

a firm's variable cost per unit of output, what's the equation?

-can go up or down as quantity changes

a firm's total cost per unit of output; what's the equation?

the additional cost of producing an additional unit of output, what's the equation? What doesn't affect this? What does this also equal?

Why does it become increasingly expensive to make another unit as output rises?

VIP COST FOR MOST OF THE KEY DECISIONS A FIRM MAKES

-If the marginal cost curve is below an average cost curve, the average cost must be ___________ aka _____________-sloping. This is true even if MC are r_____________. What is the only point at which there is no change in average cost from producing one more units?

the mathematical representation of a firm's total cost of producing different quantities of output at a fixed level of capital

total cost rises at a slower rate than output rises

total cost rises at a faster rate than output rises

total cost rises at the same rate as output rises

the simultaneous production of multiple products at a lower cost than if a firm made each product separately; what's the equation?

-the greater SCOPE is, the ____________ are the firm's cost savings from making multiple products. If SCOPE = 0, the costs are _________________

**Remember: SCOPE is defined for a p__________________ level of output of each good. Also, economies of scope are dont have to be related to economies of ______.

-often exists when different parts of a common input can be applied to the production of the firm's different products.

the simultaneous production of multiple products at a higher cost than if a firm made each product separately

SUMMARY:

A firm's total cost can be split into F and V components. Fixed cost ___ _____ _________ when the firm's output does and must be paid even if output is zero. It can only be avoided by the firm completely s__________ down and disposing of the inputs (an action that can only be undertaken in the l______ run). Variable costs are costs that change with the output level.

Cost curves relate a firm's cost to its output ______________. Because fixed cost doesn't change as output changes, fixed cost curves are __________________, and total cost curves are ____________ to variable cost curves (separated by the amount of fixed cost).

Average cost at a given output quantity equals the r_______ of cost to output. Average FC ______ continuously as output increases. Average variable cost and average total cost tend to be __-__________, falling initially, but then rising as output increases. Marginal cost is the additional cost of making one more unit of output.

In the short run, the firm's capital inputs are held constant along its expansion path, and all changes in output come from changeing ________ inputs. This means that, for all quantities except that quantity at which the fixed capital level is cost-m_______________, short-run total and average total costs must be _____________ than their long-run values. Every fixed capital level has its own short-run cost curves. The long-run average total cost curve is an "_________________" of all the short-run average total cost curves. Long-run marginal costs equals the short-run marginal costs at the quantities at which the fixed capital level is cost-minimizing.

Economies of _______ describe the relative rate at which a firm's cost changes when its output changes. When cost increases at a slower rate than output, the firm has economies of scale. Average cost is ______________ and the long-run average total cost curve is ______________-sloping when there are economies of scale. If cost increaes at a faster rate than output, diseconomies of scale occur. Average total cost is rising and the long-run average total cost curve is upward-sloping in this case. If cost ___________ at the same rate as ouput, there are neither scale economies nor diseconomies, and long-run average total cost is ____________.

Economies of scope describe how a firm's total cost changes with its product ____________________. If producing two outputs jointly is cheaper than producing the same amount of the two outputs separately, then there are economies of scope.

the direct cost of operating a business, including costs of raw materials

the sum of a producer's accounting and opportunity cost

the value of what a producer gives up by using an input
-occur everywhere in production process
-f__________-looking

the cost of the firm's fixed inputs, independent of the quantity of the firm's output, include

-avoidable and non-avoidable (sunk cost)

What is the chief factor in determining the flexibility of input levels, and therefore whether the costs of the input are considered fixed or variable?

Given a long enough time span, ____ inputs are variable costs because there are no long-run ______ costs

What is another factor of input markets that can affect how easily firms may adjust their input levels, thus determining fixed and variable costs?

-also _______ contracts

Long-run marginal cost is ________ long-run ATC when ATC is falling, ___ long-run ATC when ATC is rising, and equal to long-run ATC when ATC is at its ____________

Derive forumals for AFC, AVC, ATC, and MC for the following cost function: TC = 100 + 10 Q