Clark AP Micro Vocab 5
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Created by:
mrplayer on February 27, 2011
Subjects:
profit, production function, costs
Classes:
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23 terms
Terms | Definitions |
|---|---|
 explicit cost | a cost that involves actually paying money to those who supply resources (415-416) |
| implicit cost | A cost that does not require the outlay of money; it is measured by the value, in dollar terms, of forgone benefits (415-416) |
| accounting profit | a firm's total revenue minus the explicit cost (and depreciation) (416-417) |
| economic profit | the firm's total revenue minus the opportunity cost of its resources; total revenue minus total cost, including both explicit and implicit costs; also called above-normal or pure profit (64, 416-7, 581) |
| normal profit | the opportunity cost of the entrepreneur's talents; another way of saying the firm is earning zero economic profit; earning just enough to keep a firm engaged in its current capacity (64, 416, 441, 581) |
| marginal revenue | the change in total revenue that results from selling an additional unit of output (439-440) |
| 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; the MR=MC rule; (442-447) |
| marginal cost | the additional cost to a firm of producing one more unit of a good or service (423-426) |
| production function | the relationship between quantity of inputs used to make a good and the quantity of output of that good (418-426) *you won't find this term, but the concept is discussed |
| total product | total output produced by a firm (418) |
| marginal product | the increase in total output caused by an increase of one unit of some variable factor of production, holding technology and all other inputs constant (418) |
| law of diminishing returns | the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline (418-421) |
| fixed cost | a cost that does not change as output is increased or decreased; the cost of the fixed input (421) |
| variable cost | a cost that increases as output increases and decreases as output decreases; the cost of the variable input (421-422) |
| total cost | fixed cost plus variable costs (422) |
| average total cost | total cost divided by the quantity of output produced; TC/Q or AFC+AVC (423) |
| average fixed cost | the fixed cost per unit of output; AFC=FC/Q (422) |
| average variable cost | the variable cost per unit of output; AVC=VC/Q (422-423) |
| long-run average total cost curve | shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output (426-431) |
| economies of scale | exist when a firm's long-run average total cost declines as output increases; can result from increasing returns to scale (429-430) |
| diseconomies of scale | exist when a firm's long-run average total cost increases as output increases; can result from decreasing returns to scale (429-430) |
| constant returns to scale | the property whereby long-run average total cost stays the same as the quantity of output changes; when output increases directly in proportion to an increase in all inputs (429-430) |
| sunk cost | any cost that has already been incurred and cannot be recovered (433) |
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