Advertisement Upgrade to remove ads

Depreciation

the fall in the value of the firm's capital, and accountants calculate it by using the IRS's rules, which are based on standards set by the Financial Accounting Standards Board

Firm's Opportunity Cost

The cost of the factors of production it employs

Explicit Cost

a cost paid in money

Economic Depreciation

an opportunity cost of a firm using capital that it owns-- measured as the change in the market value of a capital over a given period

Implicit cost

an opportunity cost incurred by a firm when it uses a factor of production for which it does not make a direct money payment

Economic Profit

a firm's total revenue minus total cost

Total cost

the sum of explicit and implicit costs and is the opportunity cost of production

Short Run

the time frame in which the quantities of some resources are fixed

Fixed resources

1. fixed factors of production
2. variable factors of production

Long Run

the limit frame in which the quantities of all resources can be varied

Sunk cost

The difference between the cost of the plant and the resale value

Total Product (TP)

the total quantity of a good in a given period

Marginal Product (MP)

the change in total product that results from a one-unit increase in the quantity of labor employed.
MP = change in TP/ change in Quantity labor

Increasing Marginal Returns

occur when the marginal product of an additional worker exceeds the marginal product of the previous worker

Decreasing Marginal Returns

when the marginal product of an additional worker is less than the marginal product of the previous worker.

Law of decreasing returns

a firm uses more of a variable factor of production, with a given quantity of fixed factors of production, the marginal product of the variable factor eventually decreases

Average Product (AP)

the total product per worker employed. Total product/Quantity of Labor

Total Cost (TC)

the cost of all the factors of production used by a firm

Total Fixed Cost (TFC)

the cost of the firm's fixed factors of production-- the cost of land, capital, and entrepreneurship

Total Variable Cost (TVC)

the cost of the firm's variable factor of production-- the cost of labor. TFC + TVC

Marginal Cost

the change in the total cost that results from a one-unit increase in output

Average Fixed Cost (AFC)

the total fixed cost per unit of output

Average Variable Cost (AVC)

total variable cost per unit of output

Average Total Cost (ATC)

total cost per unit of output. AFC + AVC

Economics of scale

a condition in which a firm increases its plant size and labor employed by the same %, its input increases by a larger % and its ATC decreases

Diseconomies of Scale

a condition in which, when a firm increases its plant size and labor employed by the same %, its output increases by a smaller % and its ATC increases

Constant Returns to Scale

a condition in which, when a firm increases its plant size and labor employed by the same % and its average cost remains constant

Please allow access to your computer’s microphone to use Voice Recording.

Having trouble? Click here for help.

We can’t access your microphone!

Click the icon above to update your browser permissions above and try again

Example:

Reload the page to try again!

Reload

Press Cmd-0 to reset your zoom

Press Ctrl-0 to reset your zoom

It looks like your browser might be zoomed in or out. Your browser needs to be zoomed to a normal size to record audio.

Please upgrade Flash or install Chrome
to use Voice Recording.

For more help, see our troubleshooting page.

Your microphone is muted

For help fixing this issue, see this FAQ.

Star this term

You can study starred terms together

NEW! Voice Recording

Create Set