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Cost Of Production - Coggle Diagram
Cost Of Production
What are Cost
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Firm's Objective
To maximize profits
Total Revenue (Price * Quantity)
- amount of firm receive for the sale (output)
total Cost ( Total fixed cost + total variable cost)
- market value of the inputs a firm uses in production
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Cost as opportunity cost
- cost of something you give up to get it
Firm's cost of production
- include all the opportunity costs
Explicits costs
- require an outlay of money
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Implicit costs
- do not require a cash outlay
e.g.,opportunity cost of the owner's time
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Production and Cost
Production function show the relationship between quantity of inputs used to make good & quantity of output of that good
Marginal product of any input in the production process in the increase in output that arises from an additional unit of that input.
Diminishing Marginal Product
example: the more worker are hired at a firm, each worker contributes less production due to the firm has limited amount of equipment.
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marginal product declines, production function became flatter.