Define the following:

1. Total Revenue

The amount a firm receives for the sale of its output.
Quantity of output the firm produces X Price at which it sells its output

2. Total Cost

the market value of the inputs a firm uses in production (includes all opportunity costs)
In economics total cost = explicit costs + implicit costs

3. profit

total revenue minus the total cost
Most producers' objective is to create as much profit as possible in their firm

4. explicit vs. implicit costs

• Explicit costs are defined as input costs that require an outlay of money by the firm. For example, a worker's wages are part of a firm's explicit costs
• Implicit costs are those that do not require an outlay of money by the firm. These are usually defined as opportunity costs. For example, if the owner of a firm makes a 200$ income per year while having made a 300$ income as a worker somewhere else, the 100$ opportunity cost would be part of the firm's implicit costs.

5. economic profit vs. accounting profit

• Economic profit is the total revenue of the firm minus the total costs, which would take into account both the explicit and implicit costs. This is because economists are interested in studying how firms make production and pricing decisions.
• Accounting profit is the total revenue minus the total explicit costs, without taking into account opportunity costs. This kind of profit is usually recorded by accountants for the firm. Accountants just keep track of the money that flows into and out of firms.

6. marginal product

The increase in output that arises from an additional unit of input
ex. in a cookie factory: when the number of workers increases from 1 to 2, cookie production increases from 50 to 90. The marginal product of the second worker is 40 cookies.

7. diminishing marginal product

the property whereby the marginal product of an input declines as the quantity of the input increases
ex. Following the example of the cookie factory above: when the number of workers increases from 2 to 3, cookie production increases from 90 to 120. The marginal product of the third worker is 30 cookies instead of the 40 cookies which was the marginal product of the second worker. As can be seen, the marginal product declines.

8. fixed vs. variable costs

• Fixed costs are costs that do not vary with the quantity of output. Examples of fixed costs would be rent for property and worker's salaries. These costs occur even if the firm is not producing anything.
• Variable costs are costs that vary with the quantity of output produced. This would include the cost of inputs (the more you produce the more you need) as well as the need for more workers to be hired as production increases.
• Total cost: fixed costs + variable costs

9. average total cost

The total cost divided by the quantity of output
Sum of average fixed cost and average variable cost

10. average fixed cost

The fixed costs divided by the quantity of output

11. average variable cost

The variable costs divided by the quantity of output

12. marginal cost

The change in total cost from producing an additional unit of a good

• The MC first decreases, reaches a minimum then increases

13. Why do marginal costs first decrease and then rise?

First decreases because it's not too hard to get an additional unit out of a business or worker Then rises because it becomes increasingly difficult to increase output as you near capacity (Law of Diminishing Returns)

14. What is the relationship between marginal costs, the ATC and the AVC? When the marginal cost is less than the average total cost the average total cost is falling but when the marginal cost is greater than the average total cost the average total cost is rising. the marginal cost curve will intersect both the ATC and the AVC curves at their lowest points.

15. What is the relationship between marginal costs and fixed costs? Explain.
• Whenever marginal cost is less than average total cost, average total cost is falling. Whenever marginal cost is greater than average total cost, average total cost is rising.

16. Explain the reason for the ATC and the AVC curves?

Because the variable cost and so also the total cost, according to the law of dimminishing returns, will increase as a you produce 1 more quantity of a good. This causes the ATC and AVC to curve up as a greater ammount of a good is produced.

17. If AFC is not represented on most graphs, how can you figure this out?

In a graph the difference between the ATC and AVC would be the AFC, because the ATC is the AVC + AFC.

18. How do long run ATC curves and short run ATC curves differ and why?

19. Define economies of scale and why they arise.

• The property whereby long-run average total cost falls as the quantity of output increases.

20. Diseconomies of scale and why they arise.

• The property whereby long-run average total cost rises as the quantity of output increases.

21. constant return to scale

• The property whereby long-run average total cost stays the same as the quantity of output changes.