ECON III
Terms
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- Explicit Costs
- Outgoing payments for the use of resources needed to produce the good or service
- Examples of Explicit Costs
- Electricity, Employee Wages, Rent, Supplies, etc
- Implicit Costs
- Owner supplied resources used in producing the good or service and forgone costs associated with them. "Opportunity costs" of owning a business
- Examples of Implicit Costs
- Salaries forgone, Interest Forgone, Normal Profit
- Short Run
- Fixed. In the SR firms can not change the size of their plant, factory, or facility. The resource is fixed. Other resources like labor and supplies or material can be altered.
- Long Run
- In the long run, the plant or factor can vary. We can build onto it, build another one in a different location, or even close a factory. All resources become variable in the long run.
- Examples of Long Run
-
1). JCCC Builds a new classroom Building
2). AMC Theater adds a balcony - Examples of Short Run
- 1). China Starr adds second buffett station
- Law of Diminishing Returns
- The more of one resource you add to some fixed resource (land) at some point the additional output you get diminishes
- Fixed Costs
- Fixed costs are costs that don't change with the level of production
- Examples of Fixed Costs
- rent, insurance premiums, salaried employees, bank loans on capital, fixed taxes, depreciation, leases, salaries
- Variable Costs
- Costs that vary with output
- Examples of Variable Costs
- Laborers (hourly wages), Utilities, Supplies, Advertising, transportation
- Productive Efficiency
- Occurs when firms are employing the least cost methods of production. This happens when price of the product is equal to the minimum of the ATC. P=Min ATC.
- Allocative Efficiency
- means society is getting enough of the product. this occurs when p=mc