E4B2 L1 - the costs of production

A series of vocabulary flashcards covering key economic concepts related to costs, production, and profit in business.

Opportunity Cost

The cost of using resources for a specific purpose, measured by the value of the next best alternative that is given up.

Implicit Costs

Costs that do not involve a direct cash payment, crucial for calculating economic profit.

Economic Profit

Calculated as total revenue minus both explicit and implicit costs, differs from accounting profit.

Marginal Product

The additional output produced from adding one more unit of input, typically decreases as more input is added.

Fixed Costs

Expenses that do not change with the level of production.

Variable Costs

Costs that change directly with the level of production.

Economies of Scale

When long-run average total cost decreases as the quantity of output increases.

Total Revenue (TR)

The total amount of money received from sales of goods or services.

Short Run (SR)

A period where at least one factor of production is fixed.

Long Run (LR)

A period where all factors of production are variable.

Average Cost (AC)

Total cost divided by the quantity of output produced.

Marginal Cost (MC)

The increase in total cost caused by producing an additional unit of output.

Diminishing Marginal Product

The principle that as more of an input is added, the additional output produced eventually decreases.

Accounting Profit

Total revenue minus explicit costs.

Diseconomies of Scale

When long-run average total cost rises as the quantity of output increases.

Constant Returns to Scale

When long-run average total cost remains the same as the quantity of output changes.