question
what does a cost function show?
answer
it shows the relationship between cost input and output
question
what determines the cost structure of the firm?
answer
the cost structure is determined by the production function and the input prices of the firm
question
what is the opportunity cost doctrine?
answer
the input values together with production costs determine the economic cost of a product
question
what is historical costs?
answer
the money that managers actually paid for an input
question
what are explicit costs?
answer
the ordinary items accountants include as the firms expenses
question
what are implicit costs?
answer
the forgone value of resources that managers did not put to their best use
question
what is the doctrine of sunk costs?
answer
resources that are spent and cannot be recovered
question
what is the short run?
answer
period of time where at least one of the inputs is fixed
question
what is the long run?
answer
period of time where the quantities of all inputs are variable
question
what is the scale of plant?
answer
the scale is determined by fixed inputs
question
when does marginal cost equal average variable cost?
answer
marginal cost equals average variable cost at average variable costs minimum
question
when does marginal cost equal average total cost?
answer
marginal cost equals average total cost when average total cost is at its minimum
question
what is the long run total cost function?
answer
relationship between long run total cost function
question
what is the long run average cost function?
answer
function showing the minimum cost per unit of all output levels when any desired plant is built
question
what is the marginal cost function?
answer
function representing how varying output affects the cost of producing the last unit if the manager has chosen he most efficient input bundle
question
what are economies of scale?
answer
when the firm's average unit cost decreases as output increases
question
how can economies of scale occur?
answer
can result from larger plant size and an increase in the number of plants
question
what are diseconomies of scale?
answer
when the average unit costs increase as output increases
question
what are economies of scope?
answer
economies of scope exist when the cost of jointly producing two (or more) products is less than the cost of producing each one alone
question
what is the break even point?
answer
output level that must be reached if managers are to avoid losses
question
what is the profit contribution analysis?
answer
a break even analysis to understand the relationship between price and profit
question
what is the economic cost of a product?
answer
it is equal to the sum of the production cost and the opportunity costs
question
what happens when graphing AVC and ATC
answer
both fall initially as output rises but both eventually start to increase after a certain point
question
what is marginal cost?
answer
the incremental cost of producing one more unit of output
question
what does breakeven analysis do?
answer
compares total revenue and total cost over a range of output, allowing managers to see the sales level that must be achieved in order to cover all costs and avoid incurring a loss
question
what does profit contribution analysis do?
answer
allows managers to calculate how much additional sales of their product will contribute to either an increase in profits or a reduction in losses
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