Economic Costs Quiz Flashcards
cost that requires an outlay of money
explicit cost
cost that is measured by the value, in dollar terms, of benefits that are forgone
implicit cost
the sum of explicit and implicit cost
opportunity cost
revenue-explicit cost
accounting profit
revenue-opportunity cost of resources used (economic cost)
economic profit
total value of assets owned by an individual or firm
capital
cash, stock, bonds
financial assets
buildings, equipment, tools, inventory
physical assets
opportunity cost of the use of one’s own capital, income earned if the capital had be used in its next-best alternative
implicit cost of capital
when making an either-or choice between two activities, choose
the one with the positive economic profit
additional cost incurred by producing one more unit of a good or service
marginal cost
when each additional unit costs more to produce than the previous one
increasing marginal cost
when each additional unit costs the same to produce as the previous one
constant marginal cost
quantity that generates the highest possible total profit
optimal quantity
when making a profit-maximizing how much decision, continue the activity as long as
the marginal benefits/revenue are greater than the marginal costs
cost that has already been incurred and is nonrecoverable, should be ignored in decision making
sunk cost
choosing the available option that leads to a preferable outcome
rational
choosing an option that leaves you worse off than choosing another option
irrational
choosing among alternatives to get the optimal outcome
economics of decision making
economic cost of an activity
explicit cost + implicit cost
accounting profit is almost always … than economic profit
larger
when the profit is greater than zero resources
move into the industry
when the profit is equal to zero resources
do not move at all
when the profit is less than zero resources
move out of the industry
when is accounting profit greater than economic profit
when there are implicit costs
