Unit 5: Cost Functions

What’s in This Chapter? One of a firm’s objectives is to be cost efficient in order to increase its profits. This unit analyzes a firm’s costs of production. A firm’s fixed costs include its expenses on...

The Difference Between Explicit and Implicit Costs Economists distinguish between explicit and implicit costs. Explicit costs, also called accounting costs, are out-of-pocket costs, such as expenses on labor, raw materials, and...

Economic Costs and Accounting Costs Below are definitions of economic costs and accounting costs. Economic costs = implicit costs + explicit costs Accounting costs = explicit costs Economic Profit and Accounting Profit Below are...

Economic Costs There are seven important economic costs: Total Variable Cost (TVC). This is the cost of all variable inputs. Examples include the cost of temporary workers and hourly labor, the cost of materials, office...

What are the Relationships Between the Various Costs? Section 3 provides definitions of the important economic costs. Below is a list of the relationships between these costs. Using the abbreviations from the previous section,...

Graphing Cost Data from a Table In the previous section, we learned how to calculate cost data. Below we will plot the data in a graph. The next diagram shows a hypothetical firm’s total cost, total variable cost, and...

Derivation of the Long-Run Average Cost Curve A firm’s long-run average cost curve is derived from its short-run average cost curves. For each short-run fixed plant size, we take the lowest or near-lowest costs for that...

Increasing Returns to Scale Increasing returns to scale is closely associated with economies of scale (the downward sloping part of the long-run average total cost curve in the previous section). Increasing returns to scale...

  Time limit: 0 Quiz-summary 0 of 10 questions completed Questions: 1 2 3 4 5 6 7 8 9 10 Information This is a ten question multiple-choice quiz covering the material in this Unit. I hope you do well! You have already...