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Total Cost
answer
explicit costs + implicit costs
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Explicit Costs
answer
Expenses made my the producing firm such as electricity, wage, rent, etc.
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Implicit Cost
answer
The opportunity cost of the money or time for production. E.g. The amount of time the owner of a business spends working on the business instead of spending time elsewhere.
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How do you calculate Average Variable Cost?
answer
total variable cost / quantity
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How do you calculate Average Fixed Cost?
answer
total fixed cost/quantity
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How do you calculate average total cost?
answer
total cost/quantity
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How do you calculate marginal cost?
answer
Change in total variable cost/ change in quantity
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Marginal Product
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the change in output associated with one additional unit of input
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Marginal product of labor
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Change in output that arises from an additional. Change in output/Change in labor
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Diminishing Marginal Product
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the marginal product of an input declines as the quantity of the input increases. As amount of labor used increases MPL falls.
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Short Run
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Period of production in which at least one input
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Long Run
answer
Period of production in which all inputs are variable
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Average Total Cost
answer
Total cost divided by quantity
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Average Fixed Cost
answer
Fixed cost divided by quantity
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Average Variable Cost
answer
Variable Cost divided by quantity
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Marginal Cost
answer
Change in total cost that arises from producing one more unit of output
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Equation Marginal Cost
answer
Change in total cost/ Change in quantity
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Long Run Cost Changing Factors
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Scale and Efficient Scale(level of output where ATC is minimized)
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Long Run- Economies of Scale
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Long run ATC falls as the quantity of output increases. Usually firms who produce enough to see large decreases in cost due to buying in bulk.
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Constant Returns to Scale
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Long-Run ATC stays the same as the quantity of output changes. Large production capabilities in many ways but have high overhead cost. Local businesses can compete with large firms.
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Diseconomies of scale
answer
Long-run ATC rises as the quantity of output increases. More workers lead to more stretched management which becomes less effective.
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