Exam 2

Accounting profits

• Total revenue minus explicit costs, including depreciation (cash concept)

• profit divided by the quantity of output produced; also known as profit margin.

• Total revenue minus total cost (explicit plus implicit costs)

Economic profit

• Total revenue minus explicit costs, including depreciation (cash concept)

• profit divided by the quantity of output produced; also known as profit margin.

• Total revenue minus total cost (explicit plus implicit costs)

Average profit

• Total revenue minus explicit costs, including depreciation (cash concept)

• profit divided by the quantity of output produced; also known as profit margin.

• Total revenue minus total cost (explicit plus implicit costs)

Explicit cost

• Opportunity cost of resources already owned by the firm and used in business, for example, expanding a factory onto land owned

• out-of-pocket costs for a firm, for example, payments for wages & salaries, rent, or materials

• The additional cost of producing one more unit

• cost of production that increases with the quantity produced the cost of the variable inputs

implicit cost

• Opportunity cost of resources already owned by the firm and used in business, for example, expanding a factory onto land owned

• out-of-pocket costs for a firm, for example, payments for wages & salaries, rent, or materials

• The additional cost of producing one more unit

• cost of production that increases with the quantity produced the cost of the variable inputs

variable cost

• Opportunity cost of resources already owned by the firm and used in business, for example, expanding a factory onto land owned

• out-of-pocket costs for a firm, for example, payments for wages & salaries, rent, or materials

• The additional cost of producing one more unit

• cost of production that increases with the quantity produced the cost of the variable inputs

marginal cost

• Opportunity cost of resources already owned by the firm and used in business, for example, expanding a factory onto land owned

• out-of-pocket costs for a firm, for example, payments for wages & salaries, rent, or materials

• The additional cost of producing one more unit

• cost of production that increases with the quantity produced the cost of the variable inputs

economies of scales

• The long-run average cost of producing output decreases as total output increases

• The long-run average cost of producing output increases as total output increases

• Expanding all inputs proportionately does not change the average cost of prodcution

Diseconomies of scales

• The long-run average cost of producing output decreases as total output increases

• The long-run average cost of producing output increases as total output increases

• Expanding all inputs proportionately does not change the average cost of production

Constant returns to scale

• The long-run average cost of producing output decreases as total output increases

• The long-run average cost of producing output increases as total output increases

• Expanding all inputs proportionately does not change the average cost of production