Seller's Side of the Market & Production Costs

Flashcards covering key economic concepts related to the seller's side of the market, including costs, profits, and production relationships in the short and long run.

Explicit Costs

Costs that involve a direct monetary outlay (e.g., wages, rent, raw material payments).

Implicit Costs

Opportunity costs that do not involve a direct monetary payment; the value of foregone opportunities (e.g., foregone interest, owner's foregone salary).

Accounting Profit

A firm's total revenue minus its explicit costs.

Economic Profit

A firm's total revenue minus both its explicit and implicit costs.

Normal Profit

The minimum level of profit an entrepreneur must earn to make it worthwhile to stay in business, often seen as an implicit cost or payment for entrepreneurship.

Short Run (in Economics)

A period of time during which at least one input in the production process (e.g., physical plant, capital) is fixed.

Long Run (in Economics)

A period of time in which all factors of production and costs are variable, allowing a business to change its fixed inputs or physical plant.

Fixed Costs

Costs that do not change with the level of production in the short run (e.g., rental payments, interest on corporate bonds).

Variable Costs

Costs that change with the level of production in the short run (e.g., raw materials, wages of production line workers, flexible advertising expenditures).

Total Product

The total quantity of output produced by a firm during a given period of time.

Marginal Product

The additional output produced when one more unit of a variable input (like labor) is added, holding all other inputs constant.

Average Product

The total product divided by the quantity of the variable input used (e.g., total production per worker).

Law of Diminishing Returns

An economic principle stating that as additional units of a variable input are added to a fixed input, the marginal product of the variable input will eventually decline.

Negative Returns

A phase of production where adding more units of a variable input leads to a decrease in the total output, rather than an increase.