unit 3 terms

{{**Explicit cost**{{

a cost that involves actually laying out money

ex- food cost

{{**Implicit cost**{{

a cost that does not require an outlay of money; it is measured by the value, in dollar terms, of benefits that are foregone

ex-machinery operation costs

{{**Accounting profit**{{

a bussinesses total revenue minus the explicit cost and depreciation

ex- cost without implicit cost

{{**Economic profit**{{

a businesses total revenue minus the oppurtunity cost of its resources; usually less than the accounting profit

ex- one business doesn’t effect econ much, many indivduals do

{{**Normal profit**{{

an economic profit equal to zero; an economic profit just hight enough to keep a firm engaged in its current activity

ex- econ profit high enough to keep business open, but not make revenue

{{**Optimal output rule**{{

says that profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost

ex- mc=mr, most productive point

{{**Production function**{{

relationship between the quantity of inputs a firm uses and the quantity of output it produces

ex- determines efficiency

{{**Fixed cost**{{

cost that doesnt depend on the quantity of output produced; the cost of the fixed input

ex- business uses 2 pens a month

{{**Variable cost**{{

cost that depends on the quantity of output produced; the cost of the variable input

ex- scarf made with robot

{{**Total cost**{{

sum of the fixed cost and the variable cost of producing a given quantity of output

ex-profit minus amount made

{{**Short run costs**{{

cost price which has short-term inferences in the manufacturing procedures

ex- may lead to short term closure

{{**Long run costs**{{

accumulated when firms change production levels over time in response to expected economic profits or losses

ex- may lead to shut down

{{**Minimum-cost output**{{

quantity of output at which average total cost is lowest; corresponds to the bottom of the U-shaped average total cost curve

ex-could be more efficient, but point with least costs

{{**Economies of scale**{{

when long-run average total cost declines as output increases

ex- businees is becoming more efficient

{{**Diseconomies of scale**{{

when long-run average total cost increases as output increases

ex- business is becoming less efficient

{{**Constant returns to scale**{{

when output increases directly in proporton to an increase in all inputs

ex- business is becoming more efficient

{{**Sunk cost**{{

cost that has already been incurred and its nonrecoverable; should be ignored in a decision about future actions

ex- accident happens, need to fix roof

{{**Price taker**{{

individual or company that must accept prevailing prices in a market, lacking the market share to influence market price on its own

ex- farmers who have highly perfect competicion

{{**Perfectly competitive market**{{

market in which all market participants are price takers

ex- 2 farmers selling apples

{{**Standardized products**{{

describes a good produced by different firms, but that consumers regard as the same good; also known as a commodity

ex- fruits and vegtables

{{**Free entry and exit**{{

when new firms can easily enter into an industry and existing firms can easily leave that industry

ex- within perfectly competative markets

{{**Break even price**{{

the market price at which a price-taking firm earns zero profit; the minimum average total cost of such a firm

ex- most farms

{{**Shut down price**{{

price at which a firm ceases production in the short run, equal to the minimum average variable cost

ex- ice cream shops in cold areas