Term
| Economic (Opportunity) Cost |
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Definition
| A payment that must be made to obtain and retain the services of a resource; the income a firm must provide to a resource supplier to attract the resource away from an alternative use; equal to the quantity of other products that cannot be produced when resources are instead used to make a particular product. |
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| The monetary payment a firm must make to an outsider to obtain a resource. |
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| The monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market; equal to what the resource could have earned in the best-paying alternative employment; includes a normal profit. |
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| The payment made by a firm to obtain and retain entrepreneurial ability; the minimum income entrepreneurial ability must receive to induce it to perform entrepreneurial functions for the firm. |
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| The total revenue of a firm less its economic costs (which include both explicit costs and implicit costs); also called "pure profit" and "above-normal profit." |
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Definition
| A period of time in which producers are able to change the quantities of some but not all of the resources they employ; a period in which some resources are fixed and some are variable. |
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| A period of time long enough to enable producers of a product to change the quantities of all the resources they employ; period in which all resources and costs are variable and no resources or costs are fixed. |
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Definition
| The total output of a particular good or service produced by a firm. |
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| The additional output produced when 1 additional unit of a resource is employed (the quantity of all other resources employed remaining constant); equal to the change in total product divided by the change in the quantity of a resource employed. |
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Definition
| The total output produced per unit of a resource employed (total product divided by the quantity of that employed resource). |
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Term
| Law of Diminishing Returns |
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Definition
| The principle that as a consumer increases the consumption of a good or service, the marginal utility obtained from each additional unit of the good or service decreases. |
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Definition
| Any cost that in total does not change when the firm changes its output; the cost of fixed resources. |
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| A cost that in total increases when the firm increases its output and decreases when the firm reduces its output. |
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| The sum of fixed cost and variable cost. |
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| A firm's total fixed cost divided by output (the quantity of product produced). |
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Term
| Average Variable Cost (AVC) |
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Definition
| A firm's total variable cost divided by output (the quantity of product produced). |
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| A firm's total cost divided by output (the quantity of product produced); equal to average fixed cost plus average variable cost. |
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| The extra (additional) benefit of consuming 1 more unit of some good or service; the change in total benefit when 1 more unit is consumed. |
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| Reductions in the average total cost of producing a product as the firm expands the size of plant (its output) in the long run; the economies of mass production. |
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Definition
| Increases in the average total cost of producing a product as the firm expands the size of its plant (its output) in the long run. |
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Term
| Constant Returns to Scale |
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Definition
| Unchanging average total cost of producing a product as the firm expands the size of its plant (its output) in the long run. |
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Term
| Minimum Efficient Sale (MES) |
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Definition
| The lowest level of output at which a firm can minimize long-run average total cost. |
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Definition
| An industry in which economies of scale are so great that a single firm can produce the product at a lower average total cost than would be possible if more than one firm prodcued the product. |
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