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Economics Ch. 7
Key Terms
Question | Answer |
---|---|
Economic Costs | Payment that must be made to obtain and retain the services of a resource Economic Costs= Explicit Costs + Implicit Costs |
Explicit Costs | monetary payment a firm must make to an outsider to obtain a resource. |
Implicit Costs | monetary income that a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market |
Accounting Profit | Profit numbers that accountants calculate by subtracting total explicit costs from total sales revenue. |
Normal Profit | payment made by a firm to obtain and retain entrepreneurial ability. |
Economic Profit | The total revenue of a firm less its economic costs (explicit and implicit) also called pure profit. |
Law of Diminishing Returns | Principle in that as successive increments of a variable resource are added to a fixed resource the marginal product of the variable resource will eventually decrease. |
Economies of Scale | Reductions in the average total cost of producing a produc as the firm expands the size of its plant |
Diseconomies of Scale | Increases in the average total cost of producing a product as the firm expands the size of its plant |
Constant returns to scale | Unchanging average total cost of producing a product as a firm expands the size of its plant |
Natural Monopoly | 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 |
Minimum Efficient Scale | Lowest level of output at which a firm can minimize long run average total cost |