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Chapter 13

Microeconomics chapter 13.docx

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University of Maryland
ECON 200

Microeconomics Chapter 13  Total revenue: amount a firm receives for the sale of its output (quantity of output X price)  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 costs.  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
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