Chapter 9 Flashcards
Explicit Costs
- A cost that requires the laying out of money
Implicit costs
A measure of the value, in dollar terms, of the benefits that are foregone
Accounting profit
Revenue - Explicit Cost - Depreciation
Economic Profit
Accounting Profit - Implicit Costs
Revenue - opportunity costs
Capital
The value of it’s assets
Example: equipment, building, tools, inventory, and financial assets
Implicit cost of capital
The opportunity cost of the capital used by a business
The income the owner could have realized if the capital was used in the next best way
Positive economic profit
Keep business open
Two types of decisions
How much decisions
Either-or decisions
Marginal benefit
The benefit of doing a little bit more of something
Marginal cost
The cost of doing a little bit more of something
Learning effects
Lead to decreasing marginal costs
Marginal Cost Curve
Shows how the cost of producing one more unit depends on the quantity that has already been produced
Increasing marginal cost
When each additional unit costs more to produce than the previous one
Marginal benefit
Additional benefit derived from producing one more unit of that good or service
Decreasing marginal benefit
When each additonal unit of a good produces less benefit than the previous unit
