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10.13: Glossary- Production

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    249370
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    accounting profit
    total revenues minus explicit costs, including depreciation
    average profit
    profit divided by the quantity of output produced; profit margin
    average total cost
    total cost divided by the quantity of output
    average variable cost
    variable cost divided by the quantity of output
    constant returns to scale
    expanding all inputs proportionately does not change the average cost of production
    diseconomies of scale
    the long-run average cost of producing each individual unit increases as total output increases
    economic profit
    total revenues minus total costs (explicit plus implicit costs)
    explicit costs
    out-of-pocket costs for a firm, for example, payments for wages and salaries, rent, or materials
    firm
    an organization that combines inputs of labor, capital, land, and raw or finished component materials to produce outputs.
    fixed cost
    expenditure that must be made before production starts and that does not change regardless of the level of production
    implicit costs
    opportunity cost of resources already owned by the firm and used in business, for example, expanding a factory onto land already owned
    long-run average cost (LRAC) curve
    shows the lowest possible average cost of production, allowing all the inputs to production to vary so that the firm is choosing its production technology
    marginal cost
    the additional cost of producing one more unit
    private enterprise
    the ownership of businesses by private individuals
    production technologies
    alternative methods of combining inputs to produce output
    production
    the process of combining inputs to produce outputs, ideally of a value greater than the value of the inputs
    revenue
    income from selling a firm’s product; defined as price times quantity sold
    short-run average cost (SRAC) curve
    the average total cost curve in the short term; shows the total of the average fixed costs and the average variable costs
    total cost
    the sum of fixed and variable costs of production
    variable cost
    cost of production that increases with the quantity produced
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