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ECON Ch9
| Term | Definition |
|---|---|
| Economic cost | 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 |
| Explicit cost | The monetary payment made by a firm to an outsider to obtain a resource |
| Implicit cost | 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 |
| Accounting profit | The total revenue of a firm after its explicit costs; the profit (or net income) that appears on an accounting statements and that is reported to the government for tax purposes |
| Normal profit | The payment made by a firm to obtain and retain entrepreneurial ability; the minimum income that entrepreneurial ability must receive to induce entrepreneurs to provide their entrepreneurial ability to a firm |
| Economic profit | The return flowing to those who provide the economy with the economic resource of entrepreneurial ability; the total revenue of a firm after its economic costs (which includes both explicit and implicit costs); also called pure profit/above-normal profit |
| Short run | In microeconomics, a period of time in which producers are able to change the quantities of some but not all of the resources they employ; a period in which some resources (usually plant) are fixed and some are variable |
| Long run | In microeconomics, a period of time long enough to enable producers of a product to change the quantities of all the resources they employ, so that all resources and costs are variable and no resources or costs are fixed |
| Total product (TP) | The total output of a particular good or service produced by a firm (or a group of firms or the entire economy) |
| Marginal product (MP) | The additional output produced when 1 additional unit of a resource is employed (the quantity of all other resources employed remaining constant); =the change in total product over change in the quantity of a resource employed |
| Average product (AP) | The total output produced per unit of a resource employed (total product divided by the quantity of that resource employed) |
| Law of diminishing returns | 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 |
Created by:
SpanishAccount33
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