Untitled Flashcard Set

Explicit cost

A payment of money for an input, such as wages, rent, tuition, and utility bills.

Implicit cost

The value of the next-best alternative given up, which does not involve a cash transaction, such as a forgone salary.

Normal profit

Economic profit of exactly zero; the owner earns what they would earn in their next best alternative.

Marginal Product (MP)

Extra output from one more worker, calculated as the change in total product divided by the change in labor.

Average Product (AP)

Output per worker, calculated as total product divided by the number of workers.

Diminishing Marginal Returns

The phenomenon where adding more of a variable input to a fixed input eventually decreases the marginal product.

Economies of Scale

The situation in which the average total cost decreases as production increases.

Diseconomies of Scale

The condition where the average total cost increases as the firm expands its production.

Perfect Competition

A market structure where many firms sell an identical product, and no single firm can influence the market price.

Profit-maximizing rule

The principle stating that a firm should produce where marginal revenue equals marginal cost (MR = MC).