Economic Cost
What is an example of a fixed cost?
capital goods, machines, buildings, utilities (on a budget)
How do you calculate total cost?
TC=FC+VC
What are inputs?
Things that go into making a good or service
What shape is AVC and ATC?
AVC and ATC are U-shaped
What is the period of time for which there are no fixed factors of production?
Long run
What is total cost?
total economic cost of production, consisting of fixed and variable costs
How do you calculate total revenue?
TR= Price x Quantity Sold
What is opportunity cost?
the value of a highest forgone alternative;
– cost associated with opportunities that are forgone when a firm’s resources are not put to their highest-value use. What is lost due to the decision you made.
Are short term costs fixed or variable?
Most costs are fixed
What happens when more workers are added to a given amount of fixed factors?
MP rises
What is variable cost?
cost that varies as the level of output varies. If output is zero then the VC is also going to be zero
How do you calculate average total cost?
ATC=AC=TC/Q
What is marginal product?
The additional output received from hiring one additional worker
What does the marginal cost curve do?
Falls and then rises
What is the additional output received from hiring one additional worker
Marginal product
What is an example of variable cost?
labor, electricity (if not on a budget), raw materials
How do you calculate average fixed cost?
AFC=FC/Q
What is fixed cost?
Cost that does not vary with the level of output
Are long term costs fixed or variable?
Many costs become variable
What leads to diminishing MP?
Efficiency declines
What is total revenue?
total money received from the sale of any given quantity of output
How do you calculate average variable cost?
AVC=VC/Q
What is marginal revenue product?
The additional received from the additional products produce from one additional worker
What are the most common inputs?
Land, labor, capital
What is marginal resource cost?
How much it costs to hire one additional worker