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explicit cost
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A cost paid in money
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Implicit cost
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An opportunity cost incurred by a firm when it uses a factor of production for which it does not make a direct money payment.
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Economic Depreciation
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An opportunity cost of a firm using capital that it owns - measured as the change in the market value of capital over a given period.
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Normal Profit
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The return to entrepreneurship. Normal profit is part of a firm's opportunity cost because it is the cost of not running another firm.
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Economic Profit
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A firm's total revenue minus total cost.
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Short Run
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The time frame in which the quantities of some resources are fixed. In the short run, a firm can usually change the quantity of labor it uses but not its technology and quantity of capital.
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Long Run
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The time frame in which the quantities of all resources can be varied.
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Total Product
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The total quantity of a good produced in a given period.
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Marginal Product
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The change in total product that results from a one-unit increase in the quantity of labor employed.
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Increasing Marginal Returns
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When the marginal product of an additional worker exceeds the marginal product of the previous worker.
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Decreasing marginal returns
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When the marginal product of an additional worker is less than the marginal product of the previous worker.
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Average Product
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Total product divided by the quantity of a factor of production. The average product of labor is total product divided by the quantity of labor employed.
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Total Cost
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The cost of all the factors of production used by a firm
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Total fixed cost
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The cost of the firm's fixed factors of production - the cost of land, capital, and entrepreneurship
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Total variable cost
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The cost of the firm's variable factor of production - the cost of labor.
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Marginal Cost
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The change in total costs that results from a one-unit increase in output.
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Average fixed cost
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Total fixed cost per unit of output
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Average variable cost
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Total variable cost per unit of output.
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average total cost
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Total cost per unit of output, which equals average fixed cost plus average variable cost.
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Economies of scale
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Features of a firm's technology that make average total cost fall as output increases.
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Diseconomies of scale
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Features of a firm's technology that make average total cost rise as output increases.
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Constant returns to scale
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Features of a firm's technology that keep average total cost constant as output increases.
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Long-run average cost curve
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A curve that shows the lowest average total cost at which it is possible to produce each output when the firm has had sufficient time to change both its plant size and labor employed.
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Perfect Competition
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A market in which there are many firms, each selling an identical product; many buyers; no barriers to the entry of new firms into the industry; no advantage to established firms; and buyers and sellers are well informed about prices
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Monopoly
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A market in which one firm sells a good or service that has no close substitutes and a barrier blocks the entry of new firms
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Monopolistic competition
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A market in which a large number of firms compete by making similar but slightly different products.
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Oligopoly
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A market in which a small number of interdependent firms compete.
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Price taker
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A firm that cannot influence the price of the good or service that it produces.
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Marginal Revenue
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The change in total revenue that results from a one-unit increase in the quantity sold.
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Shutdown Point
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The point at which price equals minimum average variable cost and the quantity produced is that at which average variable cost is at its minimum.
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