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econ unit 3
| Term | Definition |
|---|---|
| economic cost | opportunity cost |
| explicit costs | money payments needed to purchase land, labor, and capital |
| implicit costs | opportunity cost of self-owned or employed resources |
| accounting profit | total revenue - total cost |
| total revenue | units of output x price per unit |
| total costs | explicit cost + depreciation |
| economic profit | total revenue - economic cost start with accounting profit then subtract implicit costs |
| positive economic profit | entrepreneur is BETTER OFF financially using his resources in this way |
| zero economic profit | entrepreneur WOULD NOT BE BETTER OFF financially using his resources in another way |
| negative economic profit | entrepreneur WOULD BE BETTER OFF financially using his resources in another way |
| short run | a firm cannot change its plant capacity but it can use its existing capacity more or less intensely, can change variable inputs like labor and materials |
| long run | a firm can change everything, including plants and capacity |
| production function | relationship between the quantities of inputs to the quantity of output based upon short run |
| total product | total quantity or total output of a good |
| marginal physical product (MPP) | extra output associated with adding a unit of variable resources |
| marginal product | change in total product / change in total output |
| marginal product of labor (MPL) | change in total product / change in labor input |
| law of diminishing marginal productivity | as more of an input is added initially output will increase but after some point output will decrease slope of the total product curve |
| increasing returns | MPP is larger than the previous ones |
| decreasing returns | MPP is increasing at a slower rate |
| negative returns | output falls |
| positive MPP | total product increases |
| negative MPP | total product declines |
| maximum MPP | total product is at zero |
| average physical product (APP) | total product / labor unit shows the number of output units produced by a typical unit of labor |
| APP increases | MPP>APP |
| APP decreases | MPP<APP |
| APP maximum | MPP=APP |
| cost curves | deal with short run production costs |
| total fixed cost (TFC) | also called overhead do not change with amount of production as output increases TFC does not change |
| total variable cost (TVC) | cost that change with changes in production units of labor x wage (if amount is not given) tells you how much money the firm is spending for all of its labor Q x AVC curve is always upward sloping because a firm must use more inputs to make more goods |
| total cost | TFC + TVC |
Created by:
andriamodica
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