ECO 2030 1st Edition Lecture 30 Outline of Last Lecture I The fiscal challenge ahead Outline of Current Lecture II The Costs of Production III Total costs IV Marginal Product Current Lecture The Costs of Production Chap 13 Total Revenue amount a firm receives for the sale of its output QxP Total Cost the market value of the inputs a firm uses in production Revenue total revenue minus total cost Know difference between revenue and profit Costs as opportunity cost what you give up to get something Firms cost of production includes all the opportunity costs of producing goods Explicit Costs input costs that require an outlay of money by the firm write a check etc Implicit Costs Costs that do not require an outlay of money Implicit Costs are ignored by accountants Included by economists because they are interested in decision making Total Costs Explicit Costs Implicit Costs for economists Cost of capital as an opportunity cost Implicit Costs the interest income not earned on financial capital these costs are not represented by accountants The amount of money you give up by an investment eg the lack of interest you would have made Economic Profit total revenue minus total cost total costs include both explicit and implicit costs Because of this economic profit is always accounting profit Accounting profit total revenue minus total explicit cost does not include implicit cost Because of this accounting profit is always greater than economic profit Production Function the relationship between quantity of inputs used to make a good The production function levels out quickly at some point the additional worker makes very little difference in output Marginal product the increase in output from an additional unit of production represented by the slope of the production function These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Diminishing Marginal product marginal product of an input declines as the quantity of the input increases There is a strain on the factors of production mainly labor eg Overcrowding effect Total Cost Curve the relationship between output and total costs Cost increases as output increases at some point the cost curve gets very steep Diminishing Marginal Product same reason as for the production function fixed cost Factory costs that do not vary with quantity of output eg rent etc variable cost Labor depends on the amount of workers inputs are also variable costs Total Costs TC Fixed cost Variable cost Average Fixed Cost AFC Fixed Cost quantity of output Average Variable Cost AVC Variable Cost quantity of output Review this need to be able to fill in blank spots in tables for exam fixed costs are fixed they are constant on a graph and they exist even when output is 0 Average Total Cost ATC curve always crosses the MC curve at its lowest point ATC TC Q Marginal Cost MC the additional cost of an additional unit of output MC TC Q
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