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Utility
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Ability or capacity of a good or service to be useful and give satisfaction to someone.
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explicit costs
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input costs that require an outlay of money by the firm
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implicit costs
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Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur
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accounting profit
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total revenue - explicit costs
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economic profit
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a firm's total revenue minus its explicit and implicit costs
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normal profit
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a profit that allows a business to survive and grow
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short run
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one cost must be fixed
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long run
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all costs are variable costs
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Total Product (TP)
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total output or production by a firm
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marginal product
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extra output due to the addition of one more unit of input
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Average Product (AP)
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Also called labor productivity, is output per unit of labor input
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law of diminishing returns
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the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline
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fixed costs
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costs that remain constant as output changes
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variable costs
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costs that vary with the quantity of output produced
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Total Cost (TC)
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FC + VC
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Average Fixed Cost (AFC)
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FC/Q
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Average Variable Cost (AVC)
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VC/Q
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Average Total Cost (ATC)
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TC/Q or AFC + AVC
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Marginal Cost (MC)
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The additional cost incurred from the consumption of the next unit of a good or service
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economies of scale
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the property whereby long-run average total cost falls as the quantity of output increases
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diseconomies of scale
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the situation in which a firm's long-run average costs rise as the firm increases output
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constant economies of scale
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Occurs when the firms per-unit costs do not change as output changes.
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minimum efficient scale (MES)
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the lowest level of output at which a firm can minimize long-run average total cost
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natural monopoly
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a market that runs most efficiently when one large firm supplies all of the output
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coordination problem
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a situation in which two or more people are all better off if they coordinate on a common course of action, but there is more than one possible course of action to take
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elastic
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describes demand that is very sensitive to a change in price
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Inelastic
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Describes demand that is not very sensitive to a change in price
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Externality
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an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume
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substitutes
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two goods for which an increase in the price of one leads to an increase in the demand for the other
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complements
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two goods that are bought and used together hot dogs and hot dog buns
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inferior good
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a good that consumers demand less of when their incomes increase
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