Professional Documents
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McGraw-Hill/Irwin
Economic Costs
LO1
Accounting profit
LO1
Economic Profit
LO1
Implicit costs
(including a
normal profit)
Explicit
costs
Total Revenue
Economic
(Opportunity)
Costs
Economic
profit
Accounting
profit
Accounting
costs (explicit
costs only)
7-4
Short Run
Some variable inputs
Fixed plant
Long Run
All inputs are variable
Variable plant
Firms enter and exit
LO1
7-5
LO2
Total Product
Units of Labor
7-6
Total Product, TP
TP
20
10
0
Marginal Product, MP
LO2
20
Increasing
Marginal
Returns
Negative
Marginal
Returns
Diminishing
Marginal
Returns
10
AP
1
8 9
MP
7-7
7-8
TC
1000
900
TVC
800
Costs
700
600
Fixed
Cost
500
400
Total
Cost
300
Variable
Cost
200
100
TFC
0
LO3
10
7-9
LO3
7-10
Costs
150
ATC
AVC
100
AFC
50
AVC
AFC
0
LO3
10
7-11
Marginal Cost
$200
MC
Costs
150
ATC
AVC
100
AFC
50
AVC
AFC
0
LO3
10
Q
7-12
AP
MP
Quantity of Labor
MC
Cost (Dollars)
AVC
Cost Curves
Quantity of Output
LO3
7-13
LO4
7-14
ATC-1
ATC-5
ATC-2
ATC-3
ATC-4
Long-Run
ATC
Output
LO4
7-15
Economies of scale
Labor specialization
Managerial specialization
Efficient capital
Other factors
Constant returns to scale
LO4
7-16
Diseconomies of scale
Control and coordination problems
Communication problems
Worker alienation
Shirking
LO4
7-17
LO4
7-18
Constant Returns
To Scale
Economies
Of Scale
Diseconomies
Of Scale
Long-Run
ATC
q1
q2
Output
LO4
7-19
Sunk costs
Costs have already been incurred
7-20