Econ Chapter 22 Terms

Front 1

Average fixed cost

Back 1

A firm’s total fixed cost divided per unit of a resource employed

Front 2

Average product

Back 2

The total output provided per unit of a resource employed (total product divided by the quantity of that employed resource

Front 3

Average total cost

Back 3

A firms total cost divided by the total income, as a percentage

Front 4

Average variable cost

Back 4

A firm’s total variable cost divided by output

Front 5

Constant returns to scale

Back 5

A range over which long run average cost does not change

Front 6

Diseconomies of sale

Back 6

Increases in the average total cost of producing a product as the firm expands the size of its plant in the long run

Front 7

Economic (opportunity) cost

Back 7

A payment that must be made to obtain and retain the services of a resource; the income a firm must provide to a resource supplier to attract the resource away from an alternative use; equal to the quantity of other products that cannot be produced when resources are instead used to make a particular product

Front 8

Economic profit

Back 8

The total revenue of a firm less its economic costs; also called “pure profit” and “above-normal profit”

Front 9

Economies of scale

Back 9

Reductions in the average total cost of producing as the firm expands the size of plant in the long run; the economies mass production

Front 10

Explicit costs

Back 10

The monetary payment a firm must make to an outsider to obtain a resource

Front 11

Fixed costs

Back 11

Any cost that in total does not change when the firm changes its output; the cost of fixed resources

Front 12

Implicit costs

Back 12

The monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market; equal to what the resource could have earned in the best-paying alternative employment; includes a normal profit

Front 13

Law of diminishing returns

Back 13

The principle that as successive increments of a variable resource are added to a fixed resource, the marginal product of the variable resource will eventually decrease

Front 14

Long run

Back 14

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

Front 15

Marginal cost

Back 15

The extra cost of producing 1 more unit of output; equal to the change in total cost divided by the change in output

Front 16

Marginal product

Back 16

The additional output produced when 1 additional unit of a resource is employed; equal to the change in total product divided by the change in the quantity of a resource employed

Front 17

Minimum efficient scale

Back 17

The lowest level of output at which a firm can minimize long run average total cost

Front 18

Natural monopoly

Back 18

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 would be possible if more than one firm produced the product

Front 19

Normal profit

Back 19

The payment made by a firm to obtain and retain entrprenneural ability; the minimum income entrepreneurial ability must receive to induce it to perform entrepreneurial functions for a firm

Front 20

Short run

Back 20

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

Front 21

Total cost

Back 21

The sum of fixed cost and variable cost

Front 22

Total product

Back 22

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

Front 23

Variable costs

Back 23

A cost that in total increases when the firm increases its output and decreases when the firm reduces its output