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.

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Chapter 13: Costs of Production

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Chapter 13 costs of production

Chapter 13: Costs of Production


The supply and demand

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

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

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

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

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

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

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

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

Marginal Cost

  • MC equals Amount of Cost, by the Amount of quantity


Chapter 13 costs of production

ATC

  • ATC is U Shaped if graphed

  • ATC declines as output increases

  • ATC starts rising because variable cost rises


Chapter 13 costs of production

ATC

  • At the Bottom of the ATC curve may result in minimizing ATC, which becomes the

  • EFFICIENT SCALE OF ECONOMY


Mc and atc

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

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.


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