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explicit costs
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Require an outlay of money(paying wages to workers)
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Implicit costs
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do not require a cash outlay ( opportunity cost of owner's time)
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accounting profit
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ignore's implicit costs, always gonna be greater than Economic Profit
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Product function
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a quantity of inputs used to make a good and the quantity of output of that good, gets flatter as production rises
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Marginal Product
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the increase in output that arrives from an additional unit of output keeping other inputs constant
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diminishing marginal product
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MP of an input declines as the quantity of the input increases
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Marginal cost
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the increase in total costs from producing an additional unit of output
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Marginal cost
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the slope of the total cost function
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average fixed cost
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falls as quantity rises
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As quantity rises
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average variable cost may fall initially, in most cases AVC will eventually rise as output increases
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When MC < ATC
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ATC is falling
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When MC = ATC
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ATC is at a minimum
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Short run
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some inputs are fixed
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Long run
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all inputs are variable
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economies of scale
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ATC falls as Q increases, more common when Q is low
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diseconomies of scale
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ATC rises as Q increases, more common when Q is high
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constant returns to scale
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long run ATC stays the same as the quantity of output changes
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The efficient scale of production
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the quantity of output that minimizes ATC
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If a production function exhibits diminishing marginal product
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its slope becomes flatter as the quantity of the input increases.
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