Chapter 8 – DOC! NOT FROM SLIDES

These flashcards cover key terms and concepts related to the costs of production in microeconomics.

Explicit Costs

Payments made by a firm for inputs to non-owners to attract them away from other employment, e.g., wages, rents.

Implicit Costs

Non-expenditure costs incurred through the use of self-owned resources, e.g., forgone salary by working in one’s own business.

Accounting Profit

Revenue minus explicit costs.

Economic Profit

Accounting profit minus implicit costs.

Normal Profit

The minimum profit necessary to keep resources employed in a particular business, considered a cost in economic terms.

Marginal Product

The additional output that is produced when one more unit of a variable input is added, holding other inputs constant.

Average Product

Total product divided by the number of units of the variable input used.

Law of Diminishing Returns

The principle stating that adding more of a variable input to a fixed input will increase output at a decreasing rate, and eventually output can decrease.

Fixed Costs

Costs that do not change with the level of output; incurred even if the firm produces nothing.

Variable Costs

Costs that change with the level of output; incurred only when the firm produces.

Economies of Scale

The cost advantage that arises with increased output of a product, where per-unit costs decrease as production rises.

Diseconomies of Scale

The phenomenon where per-unit costs increase as production rises, often due to inefficiencies associated with a larger scale.

Minimum Efficient Scale

The lowest level of output at which long-run average costs are minimized.

Average Fixed Cost (AFC)

Total fixed cost divided by the quantity of output.

Average Variable Cost (AVC)

Total variable cost divided by the quantity of output.

Average Total Cost (ATC)

Total cost (fixed + variable) divided by the quantity of output.

Marginal Cost (MC)

The increase in total cost that arises from producing one additional unit of output.

Cloud Computing Services

Services offered over the internet that provide computing resources without the need for physical hardware.

Opportunity Cost

The value of the next best alternative that is forgone when making a decision.