Definitions
Costs that remain constant as output changes
Total Cost / Quantity
Average Total Costs
When some resources are variable, and there is fixed costs
Long Run
MR is above ATC
Firms will enter
Profit
When marginal product is zero, total product is at
maximum
Entire amount of money a firm makes before expenses are subtracted
Total Revenue
Fixed Cost / Quantity
Average Fixed Cost
All resources are variable
Long Run
MR is below ATC
Firms will leave
Additional variable inputs are added when fixed resources remain the same, productivity will eventually fall because of
Diminishing Marginal Utility
Direct cost of running a business, (ex. cost of materials and rent)
Explicit costs
Variable Cost / Quantity
Average Variable Cost
If marginal product is positive and declining as more workers are hired
Increasing at a decreasing rate
Long-run average total cost stays the same as the quantity of output changes, ATC is as low as it can get
Constant Returns to Scale
otal Cost(TC), Average Total Cost(ATC), Average Fixed Cost(AFC) and Marginal Cost(MC) all change when
Variable Cost Changes
Additional costs of producing one more unit
Marginal Cost
Total Revenue - (explicit costs + implicit costs)
Economic Profit
Causes the long-run average cost curve eventually slopes up
diseconomies of scale
Many small firms,
identical products,
easy to enter and exit the industry,
Perfect Competition
When marginal product is positive and decreasing, total product is
increasing at a decreasing rate
when the price of the output is equal to the marginal cost of production
Allocative Efficientcy
Change in unit of output/change in units of input
Marginal Product of Labor
The cost advantages that a business obtain due to expansion. Average total costs falls as the quantity of output increases because of mass production techniques
Economies of Scale
The production of a good in a least costly way
Production efficientcy
When marginal product is above the average products, the average produts is