Discovery Unit 9 Glossary Flashcards Preview

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Flashcards in Discovery Unit 9 Glossary Deck (24):
1

Total revenue

The amount a firm receives for selling its goods. Therefore, the total revenue for a profit-seeking firm is determined by the price that a firm can charge and the quantity that it is able to sell, which in turn is related to demand for its products and the number of other firms that are selling similar or identical products. Total Revenue = Price X Quantity.

2

Total cost

The amount a firm has to pay for inputs in order to produce a certain level of output. Total costs include two components: all expenditures on labor, machinery, tools, and supplies purchased from other firms; and the value of the firmメs opportunity costs.

3

Profit

The difference between what a firm receives and what it pays for production, or total revenue minus total cost.

4

opportunity costs

A cost faced in every decision humans make. Since scarcity exists, people must make choices. Inevitably, we face trade-offs where we have to give up
things that we desire to get other things that we desire even more.

5

Explicit costs

Out-of-pocket monetary cost.

6

Implicit costs

Does not record an out-of-pocket cost but instead quantifies what has been given up.

7

accounting profit

Total revenue minus the firm's expenditures on explicit costs. Accounting Profit = Total Revenue - Explicit Costs.

8

economic profit

Measured by total revenue minus all of the firmメs opportunity costs, including both explicit expenditures and implicit costs of financial capital.
Economic Profit = Total Revenue ヨExplicit Costs ヨImplicit Costs.

9

normal profit

For the economy as a whole, financial investors earn an average or normal level of profit. That normal level of profit determines the opportunity cost of financial investments. Thus, an economist who says that perfectly competitive firms will earn モzero profitヤ in the long run really means モzero profit after all opportunity costs, including implicit costs, have been taken into account.

10

Fixed costs

Expenditures that must be made before production begins, and that do not change regardless of the level of productionラat least not in the short run of
weeks and months. Some examples of fixed costs include machinery or equipment, physical space for a retail or manufacturing business, or research and development costs to develop new technology.

11

Variable costs

Incurred in the act of producing a good or service, and they increase with the quantity produced. Some examples of variable costs include wages paid to
workers (the more products a firm produces, the more workers it hires and, thus, the more wages the firm pays), physical inputs, or utility bills such as those for electricity, water, and sewer.

12

diminishing marginal returns

Refers to when the marginal (additional) gain in output, known as the marginal product of labor, diminishes with each additional unit of input. Diminishing marginal returns are illustrated by an ever-steeper slope of the total cost curveラthat is, the cost goes up for the production of each additional unit of output.

13

marginal product of labor

Marginal (additional) gain in output.

14

production function

Graphical representation of the relationship between the quantity of inputs used to make a good and the quantity of output those inputs can produce.
Considered when analyzing the sources of economic growth. A microeconomic production function would describe the inputs and outputs of a firm or perhaps an industry. In macroeconomics, the connection from inputs to outputs for the entire economy is called an aggregate production function.

15

Average total cost (ATC)

Calculated by dividing the total cost by the quantity of output. Because average total cost is the sum of fixed costs and variable costs, average total cost can be expressed as the sum of average fixed cost and average variable cost.

16

Average variable cost (AVC)

Calculated by dividing the variable cost by the quantity of output.

17

average fixed cost

Calculated by dividing fixed cost by the quantity of output.

18

Marginal cost (MC)

The additional cost of producing one more unit. Marginal cost can be calculated by taking the change in total cost and dividing it by the change in quantity.

19

efficient scale

Minimum of the average total costs (ATC) curve.

20

economies of scale

Describes a situation in which, for goods and services, as the level of production increases, the average cost of producing each individual unit declines.

21

increasing returns to scale

Refers to the situation where the average total cost of production falls, as the quantity of output (the scale of production) goes up.

22

diseconomies of scale

Occur when long-run average total cost rises as output increases.

23

decreasing returns to scale

Occur when long-run average total cost rises as output increases.

24

constant returns to scale

Occur when long-run average total cost does not change as the level of output varies.