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The Costs of Production, Firms are willing to produce and sell a greater…
The Costs of Production
COSTS ??
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Due to the existence of implicit costs from the perspective of economist, profit is differently defined between economist and accountant.
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The Production Function
- The production function shows the relationship between quantity of inputs used to make a good and the quantity of output of that good.
Marginal Product
- The marginal product of any input in the production process is the increase in output that arises from an additional unit of that input.
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- Firms are willing to produce and sell a greater quantity of a good when the price of the good is high.
- This results in a supply curve that slopes upward.
- The economic goal of the firm is to maximize profits.
- The cost of something is what you give up to get it
- Include all the opportunity costs
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- Including both explicit and implicit costs
- Total revenue minus total explicit cost
- Diminishing marginal product is the property whereby the marginal product of an input declines as the quantity of the input increases.
Example: As more and more workers are hired at a firm, each additional worker contributes less and less to production because the firm has a limited amount of equipment.
- The slope of the production function measures the marginal product of an input, such as a worker.
- When the marginal product declines, the production function becomes flatter.
- Do not vary with the quantity of output produced
- Vary with the quantity of output produced
- Fixed cost divided by the quantity of output
- Variable cost divided by the quantity of output
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- Total Variable Costs (TVC)
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- More common when Q is low.
- More common when Q is high.