Chapter+13+The+Costs+of+Production+(Joon,+Scott,+and+Steven)

Key Terms:
 * total revenue**: the amount a firm receives for selling a good
 * total cost:** the market value of the inputs a firm uses to produce.
 * profit:** total revenue - total cost
 * explicit costs:** input costs that require an outlay of capital by the firm
 * implicit cost**: the input costs that do not require an outlay of capital by the firm
 * economice profit**: total revenue-total cost (includes both explicit and implicit costs)
 * accounting profit:** total revenue - total explicit cost
 * production function**: the link or relationship between quantity of inputs used to make a product and the quantity of output of that product
 * marginal product**: the raise in output that comes from an additional unit of input
 * diminishing marginal product:** the phenomenon in which the marginal product of an input decreases as the quantity of the input rises.
 * fixed costs:** the costs that do not change with quatinti of outputs
 * varable costs**: the costs that change with the quantity of ouput.
 * average total cost:** total cost divided by the quantity of output
 * average fixed cost:** fixed costs divided by the quantity of output
 * average varaiable cost**: variable vosts divided by the quatnity of output
 * marginal cost:** the increase in total cost that arises from an extra unit of production
 * efficient scale:** the quatity of output that minimizes average total cost
 * economies of scale**: the propert that long-run average total cost decreases as the quantity of output increases.
 * diseconomies of scale:** the property that long-run average total cost rises as the quantity of output increases
 * constant returns to scale:** the property that long-run average total cost stays the sames as the output quantity.

-Economists assume that a firms goal is to maximize profit. -**Profit = Total revenue - Total cost.** -Imagine a firm that produces pencils. -Pretend the firm produces 500 pencils and sells them at one dollar each. -The revenue would be 500 dollars. -The profit would be the total revenue minus total cost which is both the explict costs and implicit costs. -However, firms look at profit in a different way. -Firms look at profit by subtracting the total revenue by only the explicit costs.
 * Key Concepts**

-Imagine that the pencil firm hires workers. -First starts off at no workers. -There is only the **fixed costs** which is the price of the factory. -In other words, the firm is losing money as they are paying for the factory without any outputs. -As the firm hires more workers, more output is created. -However, more costs are created as well.
 * Production Costs**

Number of Workers Output Cost of Fact. Cost of Work. Total Cost of Inputs 0 0 30 10 40 1 50 30 20 50 2 90 30 30 60 3 130 30 40 70

Above shows a simple graph showing what would happen if a firm would hire one extra worker. The profit as you can see if you calculate, rises as more workers are hired, however later on you will see that you will lose more profit as you hire more. Reasons may be that there are too little of machines that make pencils in the firm for that many workers.

-To find the Average total cost divide the total cost by quantity -ATC=TC/Q -To find the marginal cost divide the change in TC by the change in Q.
 * The Various Measures of Cost**

-Goal of firms is to gain profit as much as possible. -Total revenue - total cost -Total costs may include, implicit (working in the firm rather than taking another job) and explicit (wages). -The production gets flatter as more input is put in. -Useful to graph average total cost and marginal cost to look at a firms behavior.
 * Conclusion**

1. Create a chart on what a firm would be like if it were to hire 0 to 10 workers. 2. Why would a firm look at profit in a different way than a economist? 3. What is the difference between a explict and implicit cost?
 * Study Questions**

Student Produced Resource: [|Quizlet Chapter 13]