Micro Unit 3 Flashcards
Explicit costs
(out-of-pocket costs) are payments made by businesses for running their day-to-day businesses
ex. rent, wages, materials, bills
Accounting profit
Total revenue - explicit costs
Implicit costs
opportunity costs that people or businesses “pay” or give up when they make a decision
ex. forgone wages, forgone time
Economic profit
Total revenue - economic costs*
*economic costs= explicit+implicit costs
Zero economic profit/normal profit
breaking even economically, but still making accounting profit
Profit maximization rule
Firms should continue to produce until the additional revenue received equals the additional cost of production.
Marginal revenue=marginal cost (MR=MC)
Outputs
The products used to earn profit
Inputs
Resources used to make outputs
Total Product (TP)
Total outputs produced
Marginal Product (MP)
Additional output produced
change in total products/change in inputs
Average Product (AP)
Output per unit of input
total product/units of labor
Fixed Resources
Resources that don’t change with quantity produced
Variable resources
Resources that change with quantity produced
Law of diminishing marginal returns
as we add variable resources to fixed resources, the marginal product will begin to fall.
Ex. If a business hires more workers but doesn’t create more work stations, the additional output will begin to fall because of ‘too many cooks in the kitchen’.
Fixed cost
costs for fixed resources that do not change with the amount of production
