Theory of the Firm Definitions Flashcards
Average Cost
Cost per unit output
Average Product
Product/Output per worker
Average Revenue
Revenue per unit sold
Break Even
Total Revenue = Total Costs
(No abnormal Profits)
Marginal Cost
The cost of producing one more unit of a good.
Economic Costs
Sum of explicit and implicit costs.
Economies of Scale
A firm’s ability to produce with lower average costs when they grow in size.
Explicit Costs
Costs directly related to production.
The physical payments for the factors of production, such as wages, rent and interest.
Fixed Costs
Costs that do not vary with levels of output.
Fixed Capital
A real, physical asset that is used in the production of a product, but is not used up in the production.
Implicit Costs
Risks are taken and sacrifices are made by a person or people starting a new business, so there is an opportunity cost or implicit cost to doing business
Marginal Cost
The cost of producing one more unit of a good.
Marginal Returns
The additional returns (output/product) gained from adding an additional factor of production (input).
Marginal Revenue
The additional revenue gained with each additional unit sold.
Marginal Utility
The benefit gained from consuming one additional unit of a product or service.
