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firm
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an organization that uses resources to produce a product, which it then sells. Their goal is to maximize profit.
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accounting profit
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total revenue minus total explicit cost
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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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Resources Bought in the Market
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The amount spent on resources in the market which could have been spent on other resources toproduce a different good or service
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Resources owned by the firm
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when a firm uses the capital it owns for production, it incurs an opportunity cost, because it could have sold the capital
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economic depreciation
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the fall in the market value of a firm's capital over a given period
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interest foregone
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the return on the funds used to acquire the capital
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Entrepreneurship
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Accepting the risk of starting and running a business.
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Owner's own labour services
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In addition to supplying entrepreneurship, the owner of a firm might supply labour, but not take a wage
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short run
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the time frame in which the quantity of one or more resources used inproduction is fixed
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long run
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the time frame in which the quantities of all the factors of production, including its plant, can be varied
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law of diminishing returns
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As a firm uses more of a variable input with a given quantity of fixed inputs, the marginal product of the variable input eventually diminishes
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economies of scale
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features of a firm's technology that lead to falling long-run average cost as output increases
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diseconomies of scale
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increases in cost per unit when output increases
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constant returns to scale
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when long-run average total cost is constant as output increases
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minimum efficient scale
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the level of output at which all economies of scale are exhausted
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