Definitions
The opportunity cost that firms pay for using their own resources
Implicit Costs
Variable Cost / Quantity
Average Variable Cost
There is no fixed resources
Long Run
Direct cost of running a business
Explicit Costs
In the short run, as output increases, average fixed cost
falls
A firm's revenue minus its explicit and implicit costs
Economic Profit
Change in Total Cost / Change In Quantity
Marginal Cost
If labor is the only variable input and wage is constant, marginal cost reaches its minimum when
marginal product reaches its maximum
The total amount of money a firm receives by selling goods or services
Total Revenue
Total Cost, Average Total Cost, Average Fixed Cost and Marginal Cost all change when
Variable Cost Changes
Costs that change as output changes
Variable Costs
Total Revenue - (explicit costs + implicit costs)
Economic Profit
Each additional worker is increasingly more productive, a given quantity of output can be produced with fewer variable inputs.
Increasing Marginal Returns
Many small firms,
identical products,
easy to enter and exit the industry
Perfect Competition
Marginal cost rises due to
Diminishing Marginal Returns
Long-run average total cost stays the same as the quantity of output changes, ATC is as low as it can get
Constant Returns to Scale
Change in unit of output/change in units of input
Marginal Product of Labor
Additional variable inputs are added when fixed resources remain the same, productivity will eventually fall because of
Diminishing Marginal Utility
The production of a good in a least costly way
Production efficientcy
There is always fixed input involved in
Diminishing Marginal Returns
Optimal use of society's scare resources
Perfect competition forces firms to use limited resources to the fullest
Efficientcy
Total Revenue - (implicit +explicit costs) = 0
Normal Profit
If marginal cost is positive and rising as more output is produced, then total cost is
Increasing at an Increasing Rate
when the price of the output is equal to the marginal cost of production
Allocative Efficientcy
difference between a company's total revenue and combined explicit and implicit costs are equal to zero
Normal Profit