| A | B |
|---|
| economic cost | a payment that must be made to obtain and retain the services of a resource; the income a firm must provide to a resource supplier to attract the resource away from an alternative use |
| explicit costs | The monetary payment a firm must make to an outsider to obtain a resource |
| implicit costs | the monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market; equal to what the resource could have earned in the best-paying alternative employment; includes normal profit |
| normal profit | the payment made by a firm to obtain and retain entrepreneurial ability; the minimum income entrepreneurial ability must receive to induce it to perform entrepreneurial functions for a firm |
| economic profit | the total revenue of a firm less its economic costs "pure profit" |
| short run | in microeconomics, a period of time in which producers are able to change the quantities of some but not all of the resources they employ |
| long run | in microeconomics a period of time long enough to enable producers of a product to change the quantities of all the resources they employ |
| total produt (TP) | the total output of a particular good or service produced by a firm. |
| marginal product (MP) | the additional output produced when 1 additional unit of a resource is employed (ceteris paribus) equal to the change in total product divided by the change in the quantity of a resource employed |
| average product (AP) | The total output produced per unit of a resource employed |
| law of diminishing returns | The principle that as successive increments of a variable resource are added to a fixed resource, the marginal product of the variable resource will eventually decrease |
| fixed costs | Any cost that in total does not change when the firm changes its output |
| variable costs | a cost that in total increases when the firm increases its output and decreases when the firm reduces its output |
| total cost (TC) | the sum of fixed and variable cost |
| average fixed cost (AFC) | a firm's total fixed cost divided by output |
| average variable cost (AVC) | a firm's total variable cost divided by output |
| average total cost (ATC) | a firm's total cost divided by output |
| marginal cost (MC) | the extra cost of producing 1 more unit of output; equal to the change in total cost divided by the change in output |
| economies of scale | reductions in in the average total cost of producting a product as the fimr expands the size of plant or output in the long run |
| diseconomies of scale | increases in the average total cost of producing a produt as the firm expands the size of its plant in the long run |
| constant returns to scale | unchanging average total cost of producing a product as the firm expands the size of its plant in the long run |
| minimum efficient scale (MES) | the lowest level of output at which a firm can minimize long-run average total cost |
| natural monopoly | An industry in which economies of scale are so great that a single firm can produce the product at a lower average total cost than would be possible if more than one firm produced the product |
