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profit
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occurs whenever total revenue is higher than total cost
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loss
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occurs whenever total revenue is less than total cost
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total revenue
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the amount a firm receives from the sale of goods and services
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total cost
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the amount a firms spends to produce and/or sell goods and services
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explicit costs
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tangible, out-of-pocket costs
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implicit costs
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the costs of the resources that are already owned, for which there is no out of pocket payment. It is also known as an opportunity cost
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accounting profit
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profit that is calculated by subtracting the explicit costs from total revenue
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economic profit
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profit that is calculated by subtracting the explicit and implicit costs of business from total revenue
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output
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the product a firm creates, also known as quantity
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factors of production
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inputs used in producing goods and services
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input
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a resource used in the production process to generate a firms output
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production function
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describes the relationship between inputs a firm uses and the output it creates
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marginal product
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the change in output associated with one additional unit of input
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diminishing marginal product
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occurs when successive increases in inputs are associated with a slower rise in output
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variable costs
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costs that change with the rate of output
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fixed costs
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unavoidable costs that do not vary with the output in the short run
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average variable cost
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cost determined by dividing total variable cost by the output
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average fixed cost
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cost determined by dividing total fixed cost by the output
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average total cost
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the sum of the average variable cost and overage fixed cost
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marginal cost
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the increase in cost that occurs from producing one additional unit of output
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scale
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refers to the size of the production process
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efficient scale
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the output level that minimizes average total cost in the long run
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economies of scale
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occurs when long run average total cost declines as output expands
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diseconomies of scale
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occurs when long average total cost rise as output expands
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constant returns to scale
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occurs when long run average total costs remain constant as output expands