LAW OF DIMINISHING RETURNS: states that in all productive processes, adding more of one
factor of production, while holding all others constant, will at some point yield lower per-unit
Economic Costs: A value equal to the quantity of other products that cannot be produced when
resources are instead used to make a particular product. This can also me known as the OPPORTUNITY
Explicit Cost: The monetary payments a firm must make to an outsider to obtain a resource.
Implicit Cost: The monetary income a firm sacrifices whe nit uses a resource it owns rather than
supplying the resource in the market; equals what the resource could have earned in the best-paying
Accounting Profit = Sales – TOTAL Explicit Cost
Economic Profit= Accounting Profit – TOTAL Implicit Cost
Normal Profit is the cost of doing business. = Time, Effort and Income they gave up .
ECONOMIC PROFIT < ACCOUNTING PROFIT
Short RUN: The productive resources are fixed. Everything is fixed besides labour. Period is fixed. Fixed
number of firms.
Long RUN: Downsizing or upsizing, where plant sizes increases when everything Is variable. Number of
firms is also considered to be variable. Amount of Labour Total Product Marginal Product of Labour
1 10 10
2 25 15
3 45 20 Inflect Point
4 60 15
5 70 10 Diminishing Returns
6 65 -5
Fixed Cost: When a cost does not change by the output.; *Costs that in total do not change when the
firm changes its output*
Variable Cost: Costs that increase or decrease with a firms output.
Total Cost= Fixed Cost + Variable Cost
- To find Average of any variable Divide variable by Quantity.
- Total Cost increase = decrease In marginal cost
- Once the decreasing marginal cost starts increasing it never decreases again .
Marginal Product: The change in total product divided by the change in total labour.
- Marginal Product is the change In total product divided by the change In the quantity of
- Marginal product is zero when the slope of the total-product curve is zero
- Average product rises when it is less than marginal pr