Formulas
What is Total Revenue?
TR=P*Q
Total revenue equals price times quantity
What are Explicit Costs?
Physical actually happening, Tangible, out-of-pocket expenses (Wages, food costs, utilities)
What is Marginal Product?
The change in total output associated with one additional unit of an input, while holding the other input constant.
What is no longer held in the Long Run?
the Fixed Cost
What is Total Cost?
TC=FC+VC
Total cost equals fixed cost plus variable cost
What are Implicit Costs?
Potential Profits that aren't being used
The costs of resources already owned for which no out-of-pocket expense is made
These are also opportunity costs because we forego the use of these owned resources being used for something else
(Owning land and not renting it out, Opportunity costs of doing business, of capital goods, of ownerβs time)
How do you calculate Average Total Cost?
ATC=TC/Q
total cost divided by quantity
The total cost of producing output π is ππΆπ= 100+π. Find the AVC, ATC, and MC.
π΄ππΆ=π π΄ππΆ=100 π+π ππΆ=2π
How do we calculate profits or losses?
Profits(Losses)=TR-TC
Difference of Accounting and Economic Profit?
Accounting Profit: P=Revenue-Explicit costs
Economic Profit: P=Revenue-Explicit-Implicit
or P=Accounting-Implicit
How do you calculate Average Variable Cost?
AVC=VC/Q
Variable cost divided by Quantity
What are fixed costs?
costs that we know that are constant (rent)
What does the Production function describe?
Describes the relationship between inputs and output Q = f(K, L) EX. Q=5K-8L
How do you calculate Average Fixed Cost?
AFC=FC/Q
What are variable costs?
Costs that vary on the unit or service (labor, costs)
How does the Production function, function in the Short and Long Run?
In the SR one of the inputs is fixed (constrained)
In LR both inputs are variable (no constraints)
How do we calculate the marginal cost?
MC=Change in total cost/ Change in Quantity