Econ Exam 2 example #74589

Monetary payments to purchase resources.

Opportunity cost of using resources already owned rather than selling to outsiders for cash.

Explicit + implicit costs

Total sales revenue - explicit costs

Revenue - explicit cost - implicit cost

Greater than economic profits because they don't take implicit costs into account.

Time period is too short to alter the plant's capacity. -Plant size is fixed -Law of diminishing return

Time period is long enough to change the quantities of all resources employed. -Plant size is NOT fixed -Long run costs are all costs including the varying size of the production plant.

In the long run all resources are variable, while in the short run at least one resource is fixed.

As extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

Marginal profit becomes negative.

Marginal Cost

Shows the least per unit cost at which any output can be produced. -U-shaped because of economies of scale, NOT law of diminishing returns (which is only short run).

Explains the downward sloping part of the long run average total cost.

Reflection of marginal profit -When diminishing returns begin, then marginal cost will begin to rise.