|
 economic costs | payments a firm must make or the incomes it must provide to attract the resources it needs away from alternative production opportunities. |
| explicit costs | monetary payments (or cash expenditures) made to those who supply labor, services, or goods to the firm. |
| implicit costs | opportunity costs of using self-owned, self-employed resources; the monetary payments that self-employed resources could have earned in their best alternative use. |
| 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 the firm. |
| economic profit | total revenue less economic costs (explicit and implicit, including normal profit when applicable). |
| short run | period too brief for a firm to alter its plant capacity, yet long enough to permit a change in the degree to which the fixed plant is used. |
| long run | period long enough for it to adjust the quantities of all the resources that it employs, including plant capacity. |
| total product | total quantity, or total output, of a particular good produced; also referred to as "TP". |
| marginal product | extra output or added product associated with adding a unit of a variable resource to the production process; also referred to as "MP". |
| average product | output per unit of lab input: AP = TP/units of labor. also called labor productivity or simply, "AP". |
| law of diminishing returns | states that as successive units of a variable resource (ie: labor) are added to a fixed resource (ie: capital), beyond some point the extra or marginal product that can be attributed to each additional unit of the variable resource will decline. |
| fixed costs | those costs that in total do not vary with changes in output. |
| variable costs | those costs that change with the level of output. |
| total cost | the sum of fixed cost and variable cost at each level of output. |
| average fixed cost | found by dividing total fixed cost (TFC) by the output (Q); also called "AFC". |
| average variable cost | found by dividing total variable cost (TVC) by that output (Q); also called "AVC". |
| average total cost | found by dividing total cost (TC) by the output (Q), or by adding AFC and AVC. |
| marginal cost | extra or additional cost of producing one more unit of output. |
| economies of scale | explain the downsloping part of the long-run ATC curve; also called economies of mass production. |
| diseconomies of scale | the difficulty of efficiently controlling and coordinating a firm's operations as it becomes a large-scale producer. |
| constant returns to scale | long-run average cost does not change. |
| natural monopoly | a relatively rare market situation in which average total cost is minimized when only one firm produces the particular good or service. |