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Economic/Opportunity Cost
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Value/Worth the resource would have in its best alternative use.
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Explicit Costs
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Money payments for the use of resources owned by others.
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Implicit Costs
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Money payments that self-employed resources could have earned in their best alternative use.
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Normal Profit
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Minimum profit that a firm must receive in order to stay in business.
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Economic Profit
answer
Total revenue less economic costs (both explicit and implicit).
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Short Run
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Period of time too brief for a firm to alter its plant size.
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Long Run
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Period of time long enough for a firm to adjust quantities of all resource that it employs as well as its plant size.
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Total Product (TP)
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Total quantity/output of a produced good/service.
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Marginal Product (MP)
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Extra output/product associated with adding an additional unit of variable resource (labor).
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Average Product (AP)
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Output per unit of labor input (AP=TP/Units of Labor).
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Law of Diminishing Returns
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As successive units of a variable resource are added to a fixed resource, MP attributed to each additional unit of the variable resource will decline.
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Fixed Costs
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Costs that do not vary with changes in output.
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Variable Costs
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Costs that change with levels of output.
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Total Cost
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Sum of fixed costs and variable costs at each level of output (TC=TFC+TVC).
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Average Fixed Cost (AFC)
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Total fixed cost divided by quantity of output (AFC=TFC/Q).
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Average Variable Cost (AVC)
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Total variable cost divided by quantity of output (AVC=TVC/Q).
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Average Total Cost (ATC)
answer
Total cost divided by quantity of output or the sum of average fixed cost and average variable cost (ATC=TC/Q=AFC+AVC).
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Marginal Cost (MC)
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Extra/additional cost of producing 1 more unit of output (MC=Change in TC/Change in Q).
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Economies of Scale
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As plant size increases, a multitude of factors will for a time lead to lower average costs of production.
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Diseconomies of Scale
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Difficulty of efficiently controlling and coordinating a firm's operations as it becomes a large-scale producer.
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Constant Returns to Scale
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Long-run average cost does not change.
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Minimum Efficient Scale (MES)
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Lowest level of output at which a firm can minimize long-run average costs.
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Natural Monopoly
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Relatively rare market situation in which average total cost is minimized when only one firm produces the good/service.
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