Production, Costs & Profit

These flashcards cover key concepts related to production, costs, and profit based on lecture notes.

Types of Production

The main sectors in the economy: primary sector (natural resources), secondary sector (fabrication/process), service sector (trade/information).

Primary Sector

Industries that extract or cultivate natural resources.

Secondary Sector

Industries that fabricate or process goods.

Service Sector

Industries related to trade and information.

Productive Efficiency

Achieved when a business uses the lowest-cost production process.

Labour-Intensive Process

A production method that employs more labour and less capital.

Capital-Intensive Process

A production method that employs more capital and less labour.

Economic Costs

Total costs of production, including explicit and implicit costs.

Explicit Costs

Payments to resource suppliers outside a business.

Implicit Costs

Opportunity costs, which are what owners give up by being involved in a business.

Economic Profit

Total revenue minus economic costs (both explicit and implicit).

Accounting Profit

Total revenue minus explicit costs.

Economic Loss

Occurs when a business has accounting profit but incurs implicit costs that exceed accounting profit.

Opportunity Cost

The cost of the next best alternative foregone when making a decision.

Total Revenue

The total income from sales of goods or services.

Profit Formula

Economic profit = Total revenue - Economic costs.

Cost Comparison

Accounting profit exceeds economic profit by the amount of implicit costs.