Chapter 7 - The Firm And The Costs Of Production

Front 1

economic cost

Back 1

a value equal to the quantity of other products that cannot be produced when resources are instead used to make a particular product.

Front 2

explicit costs

Back 2

the monetary payments a firm must make to an outsider to obtain a resource

Front 3

implicit costs

Back 3

the monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market; equals what the resource could have earned in the best-paying alternative employment (including a normal profit)

Front 4

accounting profit

Back 4

the total revenue of a firm less its explicit costs

Front 5

normal profit

Back 5

the payment made by a firm to obtain and retain entrepeneurial ability

Front 6

economic profit

Back 6

a firm's total revenue less its economic costs (both explicit and implicit cost)

Front 7

short run

Back 7

a period of time in which producers are able to change the quantities of some but not all of the resources they employ

Front 8

long run

Back 8

a period of time long enough to enable producers to change the quantities of all the resources they employ

Front 9

total product (TP)

Back 9

the total output of a particular good or service produced by a firm

Front 10

marginal product (MP)

Back 10

the extra output associated with adding a unit of a variable factor to the production process

Front 11

average product (AP)

Back 11

the total output divided by the quantity of that employed resource.

Front 12

law of diminishing returns

Back 12

as successive increments of a variable factor are added to a fixed factor, the marginal product of the variable factor will eventually decrease

Front 13

fixed costs

Back 13

Costs that in total do not change when the firm changes its output

Front 14

variable costs

Back 14

costs that increase or decrease with a firm's output

Front 15

total cost

Back 15

the sum of fixed cost and variable cost

Front 16

average fixed cost (AFC)

Back 16

a firm's total fixed cost divided by output

Front 17

average variable cost (AVC)

Back 17

a firm's total variable cost divided by output

Front 18

average total cost (ATC)

Back 18

a firm's total cost divided by output

Front 19

marginal cost (MC)

Back 19

the additional cost of producing one more unit of output

Front 20

economies of scale

Back 20

reductions in the average total cost of producing a product as the firm increase plant size (output) in the long run

Front 21

diseconomies of scale

Back 21

increases in the average total cost of producing a product as the firm increase plant size (output) in the long run

Front 22

constant returns to scale

Back 22

the range of output between the points where economies of scale end and diseconomies of scale begins

Front 23

minimum efficient scale (MES)

Back 23

the lowest level of output at which a firm can minimize long-run average cost

Front 24

natural monoploy

Back 24

an industry in which economies of scale are so great that a single firm can produce the product at a lower average total cost than if more than one firm produced the product