chapter 13: costs of production
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Chapter 13: Costs of Production. The Supply and Demand . In Economy, Supply and Demand Basically runs all market activity. Supply and Demand is the most basic and the most important prefecture of Economy. Law of Supply. - PowerPoint PPT PresentationTRANSCRIPT
Chapter 13: Costs of
Production
The Supply and Demand
In Economy, Supply and Demand Basically runs all market activity.
Supply and Demand is the most basic and the most important prefecture of Economy
Law of Supply
In the Law of Supply implies that a firm is willing to produce quantity of good, if the price is high enough
Causing Supply curve to go upwards.
Revenue, Cost, and Profit
Firms always try to maximize their revenue, and profit.
Total Revenue: The amount received after selling the product.
Total Cost: How much it costs to create a single item.
Total Revenue – Total Cost = Profit
Firm’s Profits
In the Firm’s Cost, there exists the Explicit Cost, and the Implicit Cost
Explicit Cost: Direct outlay of money Implicit Cost: Cost not exactly requiring
tangible money
Economic Profit vs. Accounting Profit
Economist view profit with total revenue minus Explicit cost Minus Implicit Cost.
Accountants view profit with total revenue minus only the Explicit Cost
Therefore making the Economic Profit less than Accounting Profit
The Production
In production, there are Key Terms to be realized.
Such as Marginal Product: any increase in the input process, for additional units
Diminishing Marginal Product: Rule which says, Marginal quantity decreases as Q of input increases
Costs of Production
Fixed Costs: Costs that do not change with the amount of input or output used.
Variable Cost: Costs that change with the amount of item a firm produces.
Total Cost: Total Cost = Total Fixed Cost + Total Variable
Cost
Cost of Production
Average Cost: Average cost is determined by the amount cost divided by the amount produced.
Average Total Cost = Average Fixed Cost + Average Variable Cost
Marginal Cost
MC equals Amount of Cost, by the Amount of quantity
ATC
ATC is U Shaped if graphed ATC declines as output increases ATC starts rising because variable cost rises
ATC
At the Bottom of the ATC curve may result in minimizing ATC, which becomes the
EFFICIENT SCALE OF ECONOMY
MC and ATC
Whenever MC is less than ATC, ATC is falling Whenever MC is greater than ATC, the ATC
is rising.
Econmy and Diseconomist
Diseconomy of Scale: refer to the property whereby long-run average total cost rises as the quantity of output increases.
Constant Returns of Scale: The marginal-cost curve crosses the average-total-cost curve at the minimum of average total cost.