Chapter 13: The cost of production (level of difficulty 2)

This chapter was mainly focusing on how firms took into consideration their costs, whether they were implicit or explicit. Since they want to maximize profit they have to subtract total costs of production from total revenue. The only difficulty is how to calculated all the production costs. This then includes every single little opportunity cost from either explicit or implicit reasonings. When quantity of an input increases the production curve become rather flat, meaning that there is a diminishing marginal product. At the same time when the input rises the total cost curve becomes steeper. Fixed costs and variable costs would be included in the curve. Average total cost can me found by dividing total cost by output quantity. The cost would usually fall but eventually rises as output rises. Marginal cost is a representation in regards to when increase in total cost when it comes to increase in output by one unit. If the costs for a firm is measured in the short term the cost is fixed. While if the costs for a firm are measured in the long run, there is more time elapsed this leaving space for flexibility and are to be variable. Plenty of costs can be added to a firm but will eventually reach a level that adjusts to the operations needed to maximize profit, efficiency for them. Overall the chapter was okay to understand, the curves were somewhat confusing, but when broken down make a lot of sense. There's costs for a lot of things but make sense once they are placed in the context of the economy.