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Economics Vocabulary Chapter 6
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Gravity
Terms in this set (30)
explicit cost
the monetary payment made by a firm to an outsider to acquire an input
implicit cost
the income sacrificed by a firm that uses a resource it owns
economic cost
the sum of explicit and implicit costs, also equal to the firm's total opportunity costs
total fixed cost (TFC)
costs that do not change as output changes; arise from the use of fixed inputs
total variable cost (TVC)
costs that vary as output changes; arise from the use of variable inputs
Total cost (TC)
the sum of fixed and variable costs
average fixed cost (AFC)
Fixed cost per unit of output
Average variable cost (AVC)
variable cost per unit of output
Average total cost (ATC)
total cost per unit of output
Marginal cost (MC)
the change in cost arising from one additional unit of output
Long-run average total cost (LRATC)
a curve showing the lowest possible average cost that can be attained for any level of output when all of the firm's inputs are variable
total product (TP or Q)
the total amount of product produced by a firm
marginal product (MP)
the additional product produced by one additional unit of variable input
average product (AP)
product per unit of variable input
total revenue
the total earning of a firm from the sale of its output
marginal revenue
the additional revenue of a firm arising from the sale of an additional unit of output
average revenue
revenue per unit of output
economic profit
total revenue minus economic costs
normal profit
the minimum amount of revenue required by a firm so that it will be induced to keep running, which is that part of revenue that covers implicit costs, including entrepeneurship
law of diminishing returns
as more and more units of a variable input are added to one or more fixed inputs, the marginal product of the varaible input at first inceases, but there comes a point when the marginal product of the variable input begins to decrease
formula for TC
TC= TFC + TVC
formula for AFC
AFC=TFC/Q
formula for AVC
AVC=TVC/Q
formula for ATC
ATC=AFC+AVC
formula for MC
change in TC/change in Q = change in TVC/change in Q
formula for MP
MP=change in TP/change in units of variable input
formula for AP
AP=TP/units of variable input
formula for TR
TR=P*Q
formula for MR
MR=change in TR/change inQ
formula for AR
AR=TR/Q
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