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Key Words for Econ


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Economic (opportunity) Cost
value or worth a resource would have in its best alternative use
Explicit Costs
monetary payments made to labor, services, materials, fuel, transportation services
implicit costs
opportunity costs of using self owned, self employeed resources
normal profit
cost of doing business
economic profit
total revenue less economic costs (explicit and implicit costs)
short run
Period too brief for firm to alter its plant capacity, but long enough to change degree in which plant is used
long run
period long enough for factory to adjust quantities of all resources that it employs, including plant capacity
law of diminishing returns
as more of variable resource is added to fixed resource marginal product of variable resource will eventually decrease
economies of scale
reductions in average total cost of producing a product as the firm expands the size of plant in the long run
diseconomies of scale
increases in the average total cost of producing a product as the firm expands the size of its plant
minimum efficient scale
lowest level of output at which firm can minimize long-run average costs
natural monopoly
Average total cost is minimized when only one firm produces particular good or service
pure competition
very large number of firms producing standardized product. New firms can enter or exit the industry very easily (agri.)
pure monopoly
one firm is the sole seller of a product or service. Entry of additional firms is blocked (electricty)
monopolistic competition
large number of sellers; differentiated products; easy entry and exit from industry
only a few sellers of standardized or differentiated product. each firm is affected by decisions of its rival
price taker
competitive firm that cannot change market price only adjust to it
break-even point
point at which firm makes a normal profit but not an economic profit
product differentiation
one firm's product is distinguished from competing products by means of design, related services, quality, location, or other attributes (except price)

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