Total revenue: amount a firm receives for the sale of its output (quantity of output X
Total cost: the market value of the inputs a firm uses in production.
Profit: total revenue minus total cost.
Explicit costs: input costs that require an outlay of money by the firm.
Implicit costs: input costs that do not require an outlay of money by the firm.
Economists count both, while accountants only count explicit.
Capital- when you take out savings you no longer collect interest (implicit cost)
Economic profit: total revenue minus total cost, including both explicit and implicit
Accounting profit: total revenue minus total explicit cost.
Accounting profit is usually greater because it doesn’t count implicit costs.
Production function: relationship between quantity of inputs used to make a good
and the quantity of output of that good.
Marginal product: increase in output that arises from an additional unit of input
Diminishing marginal product: the marginal product of an input declines as the
quantity of the input increases.
When quantity produced is large, the total cost curve is steep.
More workers means less space and equipment, so less production. When there is
more workers but less production there is less profit, more costs.
Fixed costs: costs that do not vary with the quantity of output produced (rent)
Variable costs: costs that vary with the quantity of output produced (coffee)
Average total cost: total cost divided by the quantity of outp