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Expenditures
The total costs involved in starting a business, including all necessary purchases.
Total Cost
The sum of all expenditures needed to produce a product.
Opportunity Costs
The cost of the next best alternative that is forgone when making a decision.
Explicit Costs
Payments to non-owners of a firm for resources that require an outlay of money.
Implicit Costs
Costs associated with using resources owned by the firm that do not require an actual cash outlay.
Accounting Profit
Revenue minus total costs.
Economic Profit
Total revenue minus total opportunity costs (including explicit and implicit costs).
Production Function
The relationship between the quantity of inputs used and the quantity of outputs produced.
Short Run
A period where some inputs are fixed and cannot be changed.
Long Run
A period where all inputs can be varied and changed.
Marginal Product
The additional output produced when one more unit of labor is added.
Diminishing Marginal Returns
The principle that adding more of a variable resource to a fixed resource leads to smaller increases in output.
Total Fixed Costs (TFC)
Costs that do not change with the level of output.
Total Variable Costs (TVC)
Costs that vary directly with the level of output.
Total Costs (TC)
The sum of fixed and variable costs; TC = TFC + TVC.
Average Fixed Costs (AFC)
Total fixed costs divided by the quantity of output.
Average Variable Costs (AVC)
Total variable costs divided by the quantity of output.
Average Total Costs (ATC)
Total costs divided by the quantity of output.
Marginal Costs (MC)
The increase in total cost that arises from producing one additional unit of output.
Economies of Scale
Reductions in per-unit costs as output increases, due to efficiencies from the scale of production.
Diseconomies of Scale
Increased per-unit costs as a firm expands beyond a certain point, leading to inefficiencies.
Sunk Costs
Costs that have already been incurred and cannot be recovered.
Rational Thinkers
Individuals who make decisions based on marginal analysis.
Normal Profit
The minimum profit necessary for a company to remain competitive in the market.
Fixed Costs
Costs that remain constant regardless of the level of production or sales.
Variable Costs
Costs that change as the level of production varies.
Total Product (TP)
The total output produced by a firm.
Marginal Product (MP)
The additional output generated by adding one more unit of labor.
Average Product (AP)
Total product divided by the number of units of labor.
Long Run Average Total Cost (LRATC)
The per-unit cost of output when all inputs can be varied.
Market Entry
The process of a new firm starting to produce and sell in a particular market.
Market Exit
The process of a firm ceasing production in a market.
Production Curves
Graphs that show the relationship between inputs used and outputs produced.
Control and Coordination Problems
Difficulties in managing larger scale operations efficiently.
