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explicit costs
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input costs that require an outlay of money by the firm
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implicit costs
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Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur
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accounting profit
answer
total revenue minus total explicit cost
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economic profit
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total revenue minus total cost, including both explicit and implicit costs
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implicit costs of capital
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the opportunity cost of the capital used by a business—the income the owner could have realized from that capital if it had been used in its next best alternative way
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normal profit
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economic profit = zero. Economic profit just high enough ti keep a firm engaged in its current activity
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principle of marginal analysis
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every activity should continue until marginal benefit equals marginal cost
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marginal revenue
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the change in total revenue generated by an additional unit of output
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optimal output rule
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profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost
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marginal cost curve
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shows how the cost of producing one more unit depends on the quantity that has already been produced
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marginal revenue curve
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shows how marginal revenue varies as output varies
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production function
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the relationship between quantity of inputs used to make a good and the quantity of output of that good
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fixed input
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an input whose quantity is fixed for a period of time and cannot be varied
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variable input
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an input whose quantity the firm can vary at any time
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long run
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the time period in which all inputs can be varied
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short run
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the period of time during which at least one of a firm's inputs is fixed
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total product curve
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shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input
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marginal product
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the additional quantity of output produced by using one more unit of input
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diminishing returns to an output
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when an increase in the quantity of an input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input.
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