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econ unit 3

TermDefinition
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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