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Chapter 8

Chapter 8- Cost.pdf

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Department
Economics
Course
ECON 2310
Professor
B Ferguson
Semester
Fall

Description
Chapter 8- Cost October 15, 2013 8:35 PM Definitions Total Cost- a firm's total cost of producing a given level of output is the expenditure required to produce that output in the most economical way possible Variable Costs- the costs of inputs that vary with the firm's output level Fixed Costs- the costs of inputs whose use does not vary as the firm's level of output changes, with the possible exception that the cost might not be incurred if the firm decides to produce nothing Avoidable- a fixed cost is avoidable if it is not incurred when the firm decides to produce no output Sunk- a fixed cost is sunk if it is incurred even when the firm decides not to operate Opportunity Cost- the cost associated with forgoing the opportunity to employ a resource in its best alternative use Isocost Line- contains all the input combinations with the same cost Family of Isocost Lines- contains, for a given input prices, the isocost lines for all of the possible cost levels of the firm Interior Choice- an input combination is an interior choice if it uses at least a little bit of every input Interior Solution- when the least-cost input combination is an interior choice, we call it an interior solution Tangency Condition- an input combination satisfies the tangency condition if, at that input combination, the isocost line is tangent to the isoquant. Note it is when Boundary Solution- if the least-cost input combination excludes some inputs it is a boundary solution Output Expansion Path- shows the least-cost input combinations at all possible levels of output for
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