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explicit costs
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The actual payments a firm makes to its factors of production and other suppliers.
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implicit costs
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opportunity costs using the owners resources that does not require the spending of money
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Sunk costs are
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Costs that are undercoverable
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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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average fixed cost
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fixed cost divided by the quantity of output
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Average Total Cost (ATC)
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total costs divided by quantity of output
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Average Variable Cost (AVC)
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total variable costs divided by quantity of output
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Marginal Cost (MC)
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the change in total costs associated with a one-unit change in output
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Total Variable Cost (TVC)
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the total of all costs that vary with output in the short run
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Total Cost (TC)
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total fixed costs plus total variable costs
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normal profit
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the accounting profit earned when all resources earn their opportunity cost the minimum amount to keep an entrepreneur interested
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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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accounting profit
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total revenue minus total explicit cost
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Short run
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the period of time during which at least one of a firm's inputs is fixed
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marginal product
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the increase in output that arises from an additional unit of input
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average product
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total product divided by the quantity of the input
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Product curves
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show how the firm's total product, marginal product, and average product change as the firm varies the quantity of labor employed. average product will rise if marginal product is above it, average product will fall if marginal product is beneath it.
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division of labor
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Division of work into a number of separate, specialized tasks to be performed by different workers
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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 at some point
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Long run
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the time period in which all inputs can be varied. Firm can plan as if it's in the long run but always operates in the short run
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long-run average cost curve
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a curve that indicates the lowest average cost of production at each rate of output when the size, or scale, of the firm varies; also called the planning curve. Or a graphical representation of the per unit costs of production in the long run
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economies of scale
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factors that cause a producer's average cost per unit to fall as output rises. Cost advantages achieved as a result of large scale operations
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diseconomies of scale
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the property whereby long-run average total cost rises as the quantity of output increases. Bureaucratic inefficiencies in management that result in decreasing returns to scale
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decreasing returns to scale
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when long-run average total cost increases as output increases
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increasing returns to scale
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when long-run average total cost declines as output increases
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minimum efficient scale
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The lowest rate of output at which a firm takes full advantage of economies of scale. The smallest size plant capable of achieving the lowest long run average cost per production
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technological improvement
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changes in production techniques that reduce the costs of production
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