Chapter 13 - Costs of Production
1. Explicit cost vs Implicit cost
(1) Explicit cost: require an outlay of money (e.g., worker's salary, rent)
(2) Implicit cost: don’t require an outlay of money → also affects firm decisions (opportunity cost
of the owner’s time, education)
2. Accounting profit vs Economic profit
(1) Accounting profit: total revenue – total explicit cost
(2) Economic profit: total revenue – total cost (where cost = explicit cost + implicit cost)
3. Marginal product of labor (MPL)
• MPL = ∆Q / ∆L
• Law of Diminishing Marginal Product (Returns): the marginal product of an input declines as
the quantity of the input increases, holding other inputs constant (the input can be land or
capital, e.g. equipment, machines).
4. Calculating production costs
(1) Fixed cost (FC): don’t vary with Q of output (land, rent)
(2) AFC = FC / Q
(3) Variable cost (VC): vary with Q of output (workers)
(4) AVC = VC / Q
(5) Total cost (TC): TC = FC + VC
(6) ATC = TC / Q = AFC + AVC

(7) Marginal cost (MC): MC = ∆TC / ∆Q

. Marginal product of labor (MPL)
• MPL = ∆Q / ∆Lhttps://weibo.com/u/7916053997
• Law of Diminishing Marginal Product (Returns): the marginal product of an input declines as
the quantity of the input increases, holding other inputs constant (the input can be land or
capital, e.g. equipment, machines).
4. Calculating production costs
(1) Fixed cost (FC): don’t vary with Q of output (land, rent)
(2) AFC = FC / Q
(3) Variable cost (VC): vary with Q of output (workers)
(4) AVC = VC / Q
(5) Total cost (TC): TC = FC + VC
(6) ATC = TC / Q = AFC + AVC
(7) Marginal cost (MC): MC = ∆TC / ∆Q