Businesses and the Costs of Production

These flashcards cover key concepts and terms related to businesses and costs of production from the lecture notes.

Accounting Profit

The profit calculated as total revenue minus total explicit costs.

Economic Costs

The sum of explicit costs and implicit costs.

Explicit Costs

Cash payments for resources not owned.

Implicit Costs

Opportunity cost of using owned resources.

Opportunity Cost

The value of the best alternative forgone when a choice is made.

Economic Profit

Profit that takes into account both explicit and implicit costs.

Normal Profit

Economic profit of zero, where total revenue equals total costs.

Short Run

A period in which at least one input is fixed and cannot be changed.

Long Run

A period in which all inputs can be varied, allowing for changes in plant size and capacity.

Marginal Cost

The additional cost of producing one more unit of output.

Total Product (TP)

The total output of a good or service produced.

Marginal Product (MP)

The extra output from adding one more unit of labor.

Average Product (AP)

Output per unit of labor input.

Law of Diminishing Returns

Adding more labor to fixed resources leads to smaller increases in output.

Fixed Costs

Costs that do not change with the level of output.

Variable Costs

Costs that change with the level of output.

Average Total Cost (ATC)

Total cost divided by the quantity of output produced.

Average Fixed Cost (AFC)

Fixed cost divided by the quantity of output produced.

Average Variable Cost (AVC)

Variable cost divided by the quantity of output produced.

Economies of Scale

Decreasing average total costs due to mass production.

Diseconomies of Scale

Increasing average total costs due to inefficiencies in managing a large firm.

Constant Returns to Scale

A proportional increase in inputs leads to a proportional increase in outputs.