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total revenue
the amount a firm receives for the sale of its output
total cost
the market value of the inputs a firm uses in production
profit
total revenue - total cost = ____
Opportunity cost
the cost of something is what you give up to get it
Firm’s cost of production
includes all the opportunity costs of making its output of goods and services
Explicit costs
input costs that require an outlay of money by the firm
Implicit Costs
input costs that do not require an outlay of money by the firm
Total Costs
__ ___ = Explicit Costs + Implicit Costs
Economic Profit
total revenue minus total cost, including both explicit and implicit costs.
Accounting Profit
total revenue minus total explicit cost
Production Function
relationship between the quantity of inputs used to make a good and the quantity of output of that good
Marginal Product
the increase in output that arises from an additional unit of input
Diminishing marginal product
the property whereby the marginal product of an input declines as the quantity of the input increases.
Total-Cost Curve
relationship between quantity produced & total costs
Fixed Costs
costs that do not vary with the quantity of output produced
Variable Costs
costs that vary with the quantity of output produced.
Average total cost
total cost / quantity of output = ___ __ ___
average fixed cost
fixed cost / quantity of output = ___ ___ __
average variable cost
variable cost / quantity of output = ___ __ __
Marginal Cost
the increase in total cost that arises from an extra unit of production
__ ___ = change in total cost / change in quantity
Rising Marginal Cost
marginal cost rises as the quantity of output produced increases
upward slope reflects diminishing marginal product
Economies of Scale
long-run average total cost falls as the quantity of output increases
constant returns to scale
long-run average total cost stays the same as the quantity of output changes
diseconomies of scale
long-run average total cost rises as the quantity of output increases