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explicit costs
answer
a direct payment made to others in the course of running a business, such as wage, rent and materials
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implicit costs
answer
any cost that has already occurred but is not necessarily shown or reported as a separate expense
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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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product function
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technological relation between inputs and outputs
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fixed costs
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business costs, such as rent, that are constant
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variable costs
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costs that vary directly with the level of production
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average variable cost
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variable cost divided by the quantity of output
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average total cost
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total cost divided by the quantity of output
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average fixed cost
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fixed cost divided by the quantity of output
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efficient scale
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the lowest point where the plant (or firm) can produce such that its long run average costs are minimized.
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economics of scale
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savings from increased level of production
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diseconomies of scale
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company grows so large that cost per unit increases
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constant returns to scale
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when increase in input results in equal increase of output
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sunk cost
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a cost that has already been committed and cannot be recovered
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Monopoly
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A market in which there are many buyers but only one seller.
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natural monopoly
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a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
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price discrimination
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the business practice of selling the same good at different prices to different customers
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