Chapter 13

Chapter 13 talks about expanding our knowledge in firm behavior, by analyzing them more closely. Industrial organization is the study of how firms' decisions about the prices and quantities are relied on the market condition. Profit is total revenue minus total cost. Explicit costs are costs that make it mandatory for the firm to pay out some money. Implicit costs are costs that do not require a cash outlay from a firm. Economists study both implicit and explicit costs when studying how firms make production and pricing decisions. However, accountants only measure explicit costs and ignore implicit costs. Production function is the relationship between quantity of inputs to outputs of a good. The diminishing marginal product is the property where the marginal product of an input decreases as the quantity of input increases. Total cost can be divided into two types: fixed costs and variable costs. Variable costs vary with the quantity of output produced, unlike fixed costs. A firm's total cost is the sum of fixed costs and variable costs. Average total cost is the total cost divided by quantity. Marginal cost is the change in total cost divided by change in quantity. These show how the average total cost and marginal cost are obtained from total cost. Whenever the marginal cost is less than average total cost, average total cost is falling. However, whenever marginal cost is greater than average total cost, average total cost is rising. Costs vary with the quantity of output a firm produces. I thought this chapter was extremely informative and full of terminology that are well summarized in Table 3.