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Implicit costs
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Opportunity cost of using a resource that is owned by the company or a company owner
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Accounting profit
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Total profit - explicit costs
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Economic profit
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Total profit - ( explicit and implicit costs )
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Normal profit
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Accounting profit equal to the implicit costs , which insures that the resources in a firm earn their opportunity cost
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Economic loss
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When the implicit costs are not payed for by profits
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Variable resources
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Resources that can be adjusted quickly
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Fixed resources
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Resources that cannot be adjusted quickly
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Short run
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A period where at least one of a firms resources are fixed
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Long run
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A period where all of a firms resources are variable
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Total product
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A firms total output
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Production function
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The relationship between the resources employed and a firms total product
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Marginal product
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Change in total product resulting in the additional unit of labor ( other resources unchanged
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Increasing marginal returns
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Marginal product of a variable resource increases as each additional unit of resource is employed
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Law of diminishing marginal returns
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As more of a variable resource is combined with a given amount of another resource , marginal product eventually declines
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Fixed cost
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Cost that is independent of firms rate of output
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Variable cost
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Cost that changes depending on rule of output
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Total cost
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All fixed costs + all variable costs
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Marginal cost
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Change in total cost from a one unit change in total output ( change in total cost / change in total output )
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Average fixed cost
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Fixed cost / output
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Average variable cost
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Variable cost / output
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Average total cost :
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Total cost / output
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Economies of scale
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Forces that reduce a firms average cost as the scale of operations expands into the long run
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Diseconomies of scale
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Forces that may increase a firms average costs as the scale of operations expands in the long run
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Long run average cost curve
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Curve that indicates lowest average cost of production at each rate of output when the scale of the firm varies ( planning curve )
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Minimum efficient scale :
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Lowest rate of output where firm takes full advantage of economies of scale
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