Decision Making By Individual And Firms Flashcards
Explicit Costs
Actually laying out money
Implicit Cost
Measured by value, in dollars, of gone benefit
Total Opportunity Cost
Explicit Cost + Implicit Cost
Accounting Profit
Revenue - Explicit Cost
Economic Profit
Revenue - Implicit Cost - Explicit Cost
Capital of bussiness
Value of its assets
Implicit cost of capital
Opportunity cost of capital used by a business
Sunk Cost
Cost than incurred and is non-recoverable
Marginal Cost
Additional cost by additional unit of good/service
- Constant Marginal Cost - when each additional unit costs the same to produce as the previous one
- Increasing Marginal Cost - each additional unit costs more to produce than previous one
Marginal Benefit
Additional benefit earned from producing one more unit of good/service
- Decreasing Marginal Benefit - each additional unit produces less benefit
Optimal Quantity
Quantity that generates the max possible net gain
MR = MC
Marginal Revenue = Marginal Cost ~~> principle of marginal analysis
Present Value
Value on a given date of series of future payments that are discounted at a rate reflecting time preferences
