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explicit costs
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a cost that involves actually laying out money
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implicit costs
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does not require an outlay of money; it is measured by the value, in dollar terms, of benefits that are forgone
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accounting profit
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is total revenue minus explicit costs
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economic profit
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is the business's total revenue minus the opportunity cost of its resources. it is usually less than the accounting profit
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implicit cost of capital
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the opportunity cost of the capital used by a business—the income the owner could have realized from that capital if it had been used in its next best alternative way
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normal profit
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An economic profit equal to zero. It is an economic profit just high enough to keep a firm engaged in its current activity.
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Principal of Marginal Analysis
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every activity should continue until marginal benefit equals marginal cost
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marginal revenue
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the change in total revenue generated by an additional unit of output
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optimal output rule
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says that profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost
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marginal cost curve
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shows how the cost of producing one more unit depends on the quantity that has already been produced
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marginal revenue curve
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shows how marginal revenue varies as output varies
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fixed input
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is an input whose quantity is fixed for a period of time and cannot be varied
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variable input
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is an input whose quantity the firm can vary at any time
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long run
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the time period in which all inputs can be varied
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short run
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the time period in which at least one input is fixed
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total product curve
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shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input
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marginal product
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of an input is the additional quantity of output that is produced by using one more unit of that input
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production function
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is the relationship between the quantity of inputs a firm uses and the quantity of output it produces
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diminishing returns to an input
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when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input
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Fixed Costs (FC)
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is a cost that does not depend on the quantity of output produced. it is the cost of the fixed input
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variable costs (VC)
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is a cost tht depends of the quantity of output produced. it is the cost of the variable input
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Total Cost (TC)
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of producing a given quantity of ouput is the sum of the fixed cost and the variable cost of producing that quantity of output
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total cost curve
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shows how total cost depends on the quantity of output
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Marginal Cost (MC)
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is the added cost of doing something one more time
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Average Total Cost (ATC)
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often referred to as average cost, is the total costs divided by quantity of output
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Average Fixed Cost (AFC)
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is total fixed cost per unit of output
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Average Variable Cost (AVC)
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is the variable cost per unit of output
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average product
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of an input is the total product divided by the quantity of the input
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average product curve
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of an input is the total product divided by the quantity of the input
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