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Explicit Cost
An explicit cost is a direct payment made to others in the course of running a business, such as wage, rent and materials, as opposed to implicit costs, which are those where no actual payment is made. TERM 2
Implicit Cost
DEFINITION 2 An implicit cost, also called an imputed cost, implied cost, or notional cost, is the opportunity cost equal to what a firm must give up in order to use factors which it neither purchases nor hires. TERM 3
Accounting Profit
DEFINITION 3 total revenue minus explicit costs TERM 4
Economic Profit
DEFINITION 4 total revenue minus explicit and implicit costs TERM 5
Normal Profit
DEFINITION 5 profit required to induce the firms owners to employ their resources in the firm
Variable Resources
inputs that can be quickly varied to increase or decrease the rate of production TERM 7
Fixed Resources
DEFINITION 7 resources that cannot be varied in the short run TERM 8
Short Run
DEFINITION 8 period of time during which at least one resource is fixed TERM 9
Long Run
DEFINITION 9 period of time during which all resources can be varied TERM 10
Total Product
DEFINITION 10 total output of goods or services produced by the firm
Marginal Cost
marginal cost is the change in total cost that arises when the quantity produced changes by one unit. Marginal cost is key to decision making in the short run. It equals the slope of the total cost curve TERM 17
Average Fixed Cost
DEFINITION 17 Average fixed cost (AFC) is an economics term that refers to fixed costs of production (FC) divided by the quantity (Q) of output produced. Average Fixed Cost = Total Fixed Cost / Output TERM 18
Average Variable Cost
DEFINITION 18 Average Variable Cost = Total Variable Cost / output TERM 19
Average Total Cost
DEFINITION 19 Total cost / output AFC + AVC TERM 20
Economies of Scale
DEFINITION 20 Economies of scale refers to the cost advantages that a business obtains due to expansion.
Diseconomies of Scale
exist when long run average cost arises as plant size increases. TERM 22
Production Function
DEFINITION 22 identifies the maximum quantity of a particular good or service that can be produced per time period by various combinations of resources, for a given level of technology TERM 23
Isoquant
DEFINITION 23 curve that shows all the technologically efficient combinations of two resources that can produce a certain amount of output. isoquants further from the origin represent higher output levels
