Payment that must be made to obtain and retain the services of a resource Economic Costs= Explicit Costs + Implicit Costs

monetary payment a firm must make to an outsider to obtain a resource.

monetary income that a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market

Profit numbers that accountants calculate by subtracting total explicit costs from total sales revenue.

payment made by a firm to obtain and retain entrepreneurial ability.

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.

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

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

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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

Created by: abreus1

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