Chapter13+JDEM





=Introduction= ====// This chapter contains information that might be boring. This chapter is basically a chapter to learn the types of costs and the different terms used for different types of costs. Though it may be boring, this chapter is crucial for readers to understand before trying to learn anything else. This chapter will be the foundation of any knowledge that will be given in other chapters. //====

=// Total Revenue, Total Cost, Profit //=

It is crucial to know such terms, as these words are one of the most basic words the we have to know when trying to understand the firm's objective.

Profit: Simply total revenue minus the total costs gives the profit of the firm.
Profit = Total Revenue - Total Cost.

In order to get the profit, this ultimate unchanging equation can be used. It is one of those equations that you just have to know such as MR=MC in profit maximization.

When measuring the costs, there are two different types of costs.

Implicit costs: Input costs that cannot be completely explained by number or dollar signs. It is more like opportunity cost.
Explicit cost only deals with how much "money" was used. However on the contrary, Implicit costs calculate the opportunity costs and what could have been alternative ways. The main difference of these costs are represented by the two different characteristics of an accountant and an economist. Accountants only calculate using the Explicit costs. However, Economists not only uses the explicit costs, but puts implicit costs in to their calculation. This leads us to another definition of two new words.

Accounting profit: Total revenue - explicit cost
=//// What is a Production Function: ////=

****something that shows the relationship between the input and output of certain products.****
It simplifies the relationship between input and output. In this graph the additional amount of output you get from adding one more input is called the Marginal Product

Marginal Product: Additional output that is added after having one more input.
=//////// The Various Measures of Costs ////////=

Marginal Cost: Increase in total cost from change of number of production.
In order for firms to work at efficient rates, they minimize the average total cost. This is called "working at Efficient Scale"

Efficient scale: quantity of output that which minimizes the Average Total cost.


This is an example of working at Efficient Scale

=//////// Economies and Diseconomies of Scale ////////=

Constant Returns to Scale: Property where in long run, ATC does not change from change in quantity of production.
These are the properties you must know, in order to understand the other chapters in the back. These are easily used terms in economy.

=//////// Conclusion ////////=

The purpose of this chapter was not only to inform the students with terms that they will have to know in the futures, but also to give them information about how firms make decisions when it comes to productions. These by themselves only, will not tell the actual behavior of the firm. However, knowing these terms will help very much when absorbing other informations of econ.

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**1. The amount of money that a firm pays to buy inputs is called** a. total cost. b. variable cost. c. marginal cost. d. fixed cost.

a. net revenue minus you. b. total revenue minus total cost. c. average revenue minus average total cost. d. marginal revenue minus marginal cost.
 * 2. Profit is**

a. will never exceed accounting profit. b. is most often equal to accounting profit. c. is always at least as large as accounting profit. d. is a less complete measure of profitability than accounting profit.
 * 3. Economic profit**

a. total output multiplied by price per unit of output. b. total output divided by profit. c. (total output multiplied by sales price) – inventory surplus. d. (total output multiplied by sales price) – inventory shortage.
 * 4. Total revenue equals**

a. Quantity of output/ Quantity of labor b. Fixed Cost / Average Variable Cost c. Variable cost / Quantity of output d. Change in Price / Quantity of output click here to check your answers
 * 5. What is average variable cost?**

=Glossary=

Total Revenue: It is the amount a firm receives for the sale of its output. Total Cost: It is the total amount of inputs the firms has put in to to produce the product. Profit: Simply total revenue minus the total costs gives the profit of the firm. Explicit costs: Input costs that outlay by numbers. Implicit costs: Input costs that cannot be completely explained by number or dollar signs. (Such as opportunity costs) Economic profit: Total revenue - total cost (Including explicit and implicit costs) Accounting profit: Total revenue - explicit cost Production Function: It is something that shows the relationship between the input and output of certain products. Marginal Product: Additional output that is added after having one more input. Fixed Costs: costs that do not vary, and is same not accordingly to numbers of production. Variable Costs: costs that vary as numbers of production changes. Average Total Cost: Total Cost / Quantity of output Average Fixed Cost: Total fixed cost / Quantity of output

Marginal Cost: Increase in total cost from change of number of production. Efficient scale: quantity of output that which minimizes the Average Total cost. Economies of Scale: the property where in long run, ATC falls as quantity of production increases. Diseconomies of Scale: Property where in long run, ATC rises as quantity of production increases. Constant Returns to Scale: Property where in long run, ATC does not change from change in quantity of production.

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