Chapter 9: Decision Making by Individuals and Firms Flashcards
Explicit Cost
cost that requires money out of pocket
Implicit Cost
value of the benefits forgon (Opp. Cost)
Accounting Profit
revenue - explicit cost
Economic Profit
revenue - (explicit + implicit costs)
Capital
total value of the assets of an individual or firm
-both financial assets and physical assets
Implicit Cost of Capital
opp cost of the use of ones own capital
-income earned if the capital had been employed in its next best alternative use
“Either - or”
choose between two activities
“How much”
choose how much of a given activity to undertake
Marginal Analysis
comparing the benefit of doing a little bit more of an activity with cost doing that activity
Marginal Cost
additional cost incurred by producing one more unit of that good or service
Increasing Marginal Cost
when each additional unit costs more to produce than the previous one
Marginal Cost Curve
shows how the cost of producing one more unit depends on the quantity that has already been produced
Constant Marginal Cost
when each additional unit costs the same to produce as the previous one
Decreasing Marginal Cost
when each additional unit costs less to produce than previous one
Optimal Quantity
quantity that generates the max possible outfit
