AP Micro Study Guide Modules 3.1-3.4: Understanding Costs

This set of flashcards covers key terminology related to costs in AP Microeconomics, providing definitions for each term to aid in understanding and exam preparation.

Explicit Cost

Direct, out-of-pocket payments for resources.

Implicit Cost

The opportunity cost of using resources owned by the firm.

Accounting Profit

Total revenue minus explicit costs.

Economic Profit

Total revenue minus both explicit and implicit costs.

Normal Profit

The minimum profit necessary to keep a firm in operation; considered zero economic profit.

Optimal Output Rule

The condition where marginal cost equals marginal revenue.

Marginal Cost

The additional cost incurred by producing one more unit of a good.

Production Function

The relationship between inputs and the quantity of output produced.

Long Run

A period during which all inputs can be varied.

Short Run

A period during which at least one input is fixed.

Fixed Input

An input whose quantity cannot be changed in the short run.

Variable Input

An input whose quantity can be varied in the short run.

Marginal Product of Labor (MPL)

The additional output produced by one more unit of labor.

Diminishing Returns to Input

The decrease in the marginal product of an input as more of it is used.

Fixed Cost

Costs that do not change with the level of output.

Variable Cost

Costs that change with the level of output.

Total Cost

The sum of fixed costs and variable costs.

Minimum Cost Output

The level of output at which the average total cost is minimized.

Economies of Scale

Cost advantages that a firm obtains due to scale of operation.

Increasing Returns to Scale

A situation where output increases more than proportional to an increase in inputs.

Diseconomies of Scale

Cost disadvantages that a firm experiences as it increases production.

Constant Returns to Scale

A situation where output increases proportionately with an increase in inputs.