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25 Cards in this Set
- Front
- Back
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a cost that requires an outlay of money |
explicit cost
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a cost that does not require an outlay of money; it is measured by the value, in dollar terms, of benefits that are forgone |
implicit cost
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equal to revenue minus explicit cost |
accounting profit |
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equal to revenue minus the opportunity cost of resources used. It is usually less than the accounting profit |
economic profit |
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the total value of assets owned by an individual or firm- physical assets plus financial assets |
capital |
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the opportunity cost of the use of one's own capital- the income earned if the capital had been employed in its next best alternative use |
implicit cost of capital |
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when faced with an "either-or" choice between two activities, choose the one with the positive economic profit |
principle of "either-or" decision making |
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producing a good or service is the additional cost incurred by producing one more unit of that good or service |
the marginal cost |
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when each additional unit costs more to produce than the previous one |
increasing marginal cost |
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shows how the cost of producing one more unit depends on the quantity that has already been produced |
marginal cost curve |
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when each additional unit of a good or service costs the same to produce as the previous one |
constant marginal cost |
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when each additional unit of a good or service costs less to produce than the previous one |
decreasing marginal cost |
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the additional benefit of a good or service derived from producing one more unit of that good or service |
the marginal benefit |
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an activity when each additional unit of the activity yields less benefit than the previous unit |
decreasing marginal benefit |
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shows how the benefit from producing one more unit depends on the quantity that has already been produced |
marginal benefit curve |
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the quantity that generates the highest possible total profit |
optimal quantity |
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when faced with a profit-maximizing "how much" decision, the optimal quantity is the largest quantity at which the marginal benefit is greater than or equal to marginal cost |
profit-maximizing principle of marginal analysis |
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a cost that has already been incurred and is nonrecoverable. This type of cost should be ignored in decisions about future actions |
sunk cost |
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a type of decision maker that chooses the available option that leads to the outcome he or she most prefers |
a rational decision maker |
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a decision maker operating with this makes a choice that is close to but not exactly the one that leads to the best possible economic outcome |
bounded rationality |
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the willingness to sacrifice some economic payoff in order to avoid a potential loss |
risk aversion |
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this type of decision maker chooses an option that leaves him or her worse off than choosing another available option |
irrational decision maker |
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the habit of mentally assigning dollars to different accounts so that some dollars are worth more than others |
mental accounting |
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an oversensitivity to loss, leading to unwillingness to recognize a loss and move on |
loss aversion |
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the tendency to avoid making a decision and sticking with the status quo |
status quo bias |
