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ECON EXAM 3
| Term | Definition |
|---|---|
| Total Revenue | The amount a firm receives from the sale of the goods and services it produces |
| Total Cost | The amount a firm spends in order to produce the goods and services it produces |
| Explicit Cost | Tangible out-of-pocket expenses |
| Implicit Cost | A firm's opportunity cost of doing business. |
| Accounting Profit | Calculated by subtracting a firm's explicit cost from total revenue |
| Economic Profit | Calculated by subtracting both the explicit and the implicit cost of business from a firm's total revenue. |
| Output | The production the firm creates. |
| Factors of Production | The input (labor, land, and capital) used in producing goods and services. |
| Production Function | Description of the relationship between inputs a firm uses and outputs it creates |
| Marginal Production | The change in output associated with one additional unit of an input. |
| Diminishing Marginal Product | Condition occurring when successive in inputs are associated with slower rise in output. |
| Variable Cost | Cost that change with the rate of output |
| Fixed Cost | Cost that do not vary with a firm's output in the short run |
| Average Variable Cost (AVC) | Determined by dividing a firm's total variable cost by the output |
| Average Fixed Cost (AFC) | Determined by dividing a firm's total fixed cost by the output. |
| Average Total Cost (ATC) | The sum of average variable cost and average fixed cost. |
| Marginal Cost (MC) | The increase in cost that occurs from producing additional output. |
| Efficient Scale | The output level that minimizes a firm's average total cost. |
| Scale | The size of the production process |
| Economies of Scale | Condition occurring when cost decline as output expands in the long run |
| Diseconomies of Scale | Condition occurring when cost rise as output expands in the long run |
| Constant Returns to Scale | Condition occurring when cost remain constant as output expands in the long run |
| Price Taker | a firm with no control over the price set by the market |
| Profit-Maximizing Rule | The rule stating that profit maximization occurs when the firm choose the quantity that causes marginal revenue to be equal to marginal cost, or MR=MC |
| Sunk Cost | Unrecoverable cost that have been incurred as a result of past |
Created by:
Sherls2015
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