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24 Cards in this Set
- Front
- Back
economic cost
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a value equal to the quantity of other products that cannot be produced when resources are instead used to make a particular product.
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explicit costs
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the monetary payments a firm must make to an outsider to obtain a resource
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implicit costs
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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)
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accounting profit
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the total revenue of a firm less its explicit costs
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normal profit
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the payment made by a firm to obtain and retain entrepeneurial ability
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economic profit
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a firm's total revenue less its economic costs (both explicit and implicit cost)
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short run
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a period of time in which producers are able to change the quantities of some but not all of the resources they employ
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long run
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a period of time long enough to enable producers to change the quantities of all the resources they employ
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total product (TP)
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the total output of a particular good or service produced by a firm
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marginal product (MP)
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the extra output associated with adding a unit of a variable factor to the production process
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average product (AP)
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the total output divided by the quantity of that employed resource.
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law of diminishing returns
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as successive increments of a variable factor are added to a fixed factor, the marginal product of the variable factor will eventually decrease
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fixed costs
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Costs that in total do not change when the firm changes its output
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variable costs
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costs that increase or decrease with a firm's output
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total cost
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the sum of fixed cost and variable cost
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average fixed cost (AFC)
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a firm's total fixed cost divided by output
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average variable cost (AVC)
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a firm's total variable cost divided by output
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average total cost (ATC)
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a firm's total cost divided by output
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marginal cost (MC)
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the additional cost of producing one more unit of output
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economies of scale
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reductions in the average total cost of producing a product as the firm increase plant size (output) in the long run
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diseconomies of scale
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increases in the average total cost of producing a product as the firm increase plant size (output) in the long run
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constant returns to scale
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the range of output between the points where economies of scale end and diseconomies of scale begins
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minimum efficient scale (MES)
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the lowest level of output at which a firm can minimize long-run average cost
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natural monoploy
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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
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