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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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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
  • ATC is U Shaped if graphed
  • ATC declines as output increases
  • ATC starts rising because variable cost rises
  • At the Bottom of the ATC curve may result in minimizing ATC, which becomes the
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.