Microeconomics - Chapter 11

accounting profit

AP = TOTAL REVENUE - TOTAL EXPLICIT COSTS

economic profit

EP = actual revenue - (explicit + implicit costs)

implicit cost

Implicit costs do not represent an explicit outlay of money, but they are still real, representing the implicit opportunity costs of alternatives that must be forgone. Example: A typical farmer or small business owner may perform work without receiving formal wages, but the value of the alternative earnings forgone represents an implicit opportunity cost to the individual. ********

long run period

The long run is a period of time in which the firm can adjust all inputs. In the long run, all inputs to the firm are variable and will change as output changes. The long run can vary considerably in length from industry to industry.

explicit cost

input costs that require a monetary payment. they are out-of-pocket expenses (ex. wages) that are relatively easy to measure by the money spent on the resources used.

production in short run period

short run is defined as a period too brief for some inputs to be varied. the inputs that do not change with output are called fixed inputs or fixed factors of production.