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Profit
answer
A firms total revenue minus its total cost
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Revenue
answer
Price of output x quantity sold
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Accounting profit
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Total revenue, minus explicit costs and depreciation
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Depreciation
answer
Reduction of value of equipment and appliances
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Implicit costs
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Value of what has been given up when a business decision is made
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Explicit costs
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Outlays of money for inputs
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Economic profit
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Total revenue, minus explicit costs, depreciation, and implicit costs
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Implicit cost of capital
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Any cost that has already occurred, but is not necessarily shown over recorded as a separate expense
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Normal profit
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Condition when a company or industries economic profit is equal to zero
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Production
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The conversion of inputs into outputs
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Total physical product
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Total output, or quantity produced
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Marginal product
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The additional output generated by additional workers
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MP equation
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MP = change TP/ change inputs
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Average product
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The output per unit of Input
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AP equation
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AP= TP/units of labor
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Law of Diminishing returns
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As variable resources are added to fix resources, the additional output produced from each new worker will eventually fall
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Short Run Production Costs
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At least one resource is fixed
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Long Run Production Costs
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All resources are variable
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AFC
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fixed cost/quantity
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AVC
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variable cost/quantity
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Total cost
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Sum of fixed + marginal costs
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ATC
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AVC + AFC OR total costs/quantity
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Marginal cost
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Change TC/ change in Q
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MP curve
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Rises peaks and declines
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MC curve
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Declines, bottoms out, and rises
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Where MP curve peaks...
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MC curve bottoms out
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Minimum
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The point where the AVC and ATC curves hit the MC curve
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AFC
answer
The distance between AVC and ATC is equal to
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Increasing returns to scale
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When a firm doubles its input, and its output is more than double
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Diseconomies of scale
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When long run average total cost increases as output increases
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Decreasing returns to scale
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When a firm doubles its input and output is less than double
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Constant returns to scale
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When a firm doubles it's inputs and output doubles
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Sunk cost
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A cost that has already been incurred, and is nonrecoverable. No influence on future actions.
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