Chapter 13

Chapter 13 breaks away from previous chapters, focusing on costs and cost analysis. Total revenue is the amount the firm receives for the sale of its output. Total cost is the market value of the inputs a firm uses in production. Total profit is calculated by subtracting the total cost from the total revenue. In other words, total profit is how much the company makes after accounting for the costs of producing the good or service. The opportunity cost is the total amount of things forgone to get that item. Explicit costs are the input costs that need an outlay of money. While implicit costs do not require an outlay. Both of these types of costs are important in calculating the firm's cost. Economic profit is the total revenue minus the total cost, which includes both explicit and implicit costs. Accounting profit is the total revenue minus the total explicit cost. Profit is important because it motivates the firm to supply the good or service. The relationship between the quantity of inputs and the amount of output is known as the production function. The marginal product is the increase in output that comes from an additional unit of input. However, often the marginal input decreases as the amount of the input goes up. This concept is known as diminishing marginal product. Finally, there are 2 types of costs; fixed and variable. Fixed costs do not change as the quantity produce changes. However, variable costs on the other hand change as the amount of output produced changes.