Chapter 8 Flashcards
cost of firms
resources need to produce products are scarce and have alternative uses
Economic Cost
payment made to obtain and retain services of a resource
explicit costs
monetary payments used to purchase outside resources involves forgoing alternatives, paying from pocket
explicit costs examples
for inputs such as wages, utilities, materials
implicit costs
non expenditure costs (oppt cost of choice of running business)
implicit cost examples
forgone interest, wages, rent, entrepreneurial ability, income
Accounting Profit
Total Revenue - explicit cost
Economic Profit
accounting profit - implicit costs
normal profit (break even) is considered a cost because
amount required to ensure continued supply of product
positive and negative economic profit
+ doing better than in alternative venture
- doing worse than in alternative venture
Short run definition and variables
fixed plant, certain things changeable but not all. ex improve labour intensity but not add more plants
long run economic growth and example
variable plants, many things can change, can add more firms and increase labour intensity
total product
total output level per quantity
average output x quantity
marginal product
extra output associated with adding a unit of input
Average/labour product
output per unit or labour input
Tp/Quantity
Law of Diminishing Returns
all else fixed, increase in amount of workers will lead to smaller increase of production with diminishing returns
MP>AP
one more worker adds total product at an increasing rate AP rises
0 < MP < AP
one more worker increases Total product at a decreasing rate, AP falls
