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20 Cards in this Set
- Front
- Back
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Explicit cost
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Requires an expenditure-->actually laying out money.
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Implicit cost
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measured from the value in dollar terms of the benefits that are foregone. Not an outlay of money.
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Accounting profit
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Revenue-expenses (explicit costs)- depreciation
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Economic profit
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revenue-total cost (explicit and implicit costs)-deprectiation. usually less than the accounting profit.
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What does economists take into consideration that Accountants do not?
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what you give up
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Capital
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the value of a business' assets, equipment, buildings, tools, inventory, and financial assets.
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Where does a firm try to set production?
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at the intersection of the MC and MB curves
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Implicit cost of capital
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the opportunity cost of the capital used by a business- the income the owner could have realized from that capital if it could have been used in its next best alternative way.
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Marginal cost
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the additional cost of producing one more unit of good
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Marginal benefit
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the additional benefit from producing 1 more unit of good.
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increading marginal cost
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when each additional unit of the activity costs more than the previous unit.
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Marginal cost cuve
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shows how the cost of undertaking one more unit of the activity depends on the quantity of that activity that has already been done.
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Borrowing/ lending money- interest rate
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p(1+r)^n
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Decreasing marginal benefit
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when each additional unit of the activity costs less than the previous unit.
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Marginal benefit curve
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shows how the benefit from taking one more unit of activity depends on the quantity of activity that has already been done.
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Optimal quantity
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the quantity that generates the maximum possible total net gain
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principal of marginal analysis
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the optimal quantity of an activity is the the quantity when marginal benefit-marginal cost
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Sunk cost
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cost that has already been incurred and is non recoverable. it should be ignored in decisions about future actions.
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present value
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FV/(1+r)^n. to see what the present value is if you have a future value.
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NPV
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Present value of current and future benefits-PV of current and future costs.
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