The sales revenues minus the expenses of a firm over a designated time
period, usually one year. Accounting profits typically make
allowances for changes in the firm's inventories and
depreciation of its assets. No allowance is made, however, for
the opportunity cost of the equity capital of the firm's owners,
or other implicit costs.
Fixed cost divided by the number of units produced. It always declines as
output increases.
The total product (output) divided by the number of units of the variable
input required to produce that output level. Average Tax Rate:
One's tax liability divided by one's taxable income.
Total cost divided by the number of units produced. It is some times
called per unit cost.
The total variable cost divided by the number of units produced.
Unit costs are constant as the scale of the firm is altered. Neither
economies nor diseconomies of scale are
present.
A return to investors that exceeds the opportunity cost of financial
capital.
Reductions in the firm's per unit costs that are associated with the use
of large plants to produce a large volume of output.
Money paid by a firm to purchase the services of productive resources.
Cost that does not vary with output. However, fixed cost will be incurred
as long as a firm continues in business and the assets have
alternative uses.
The opportunity costs associated with a firm's use of resources that it
owns. These costs do not invoLve a direct money payment.
Examples incLude wage income and interest forgone by the owner
of a firm who also provides Labor services and equity capitaL to
the firm.
The postulate that as more and more units of a variable resource are
combined with a fixed amount of other resources, employment of
additional units of the variable resource will eventually
increase output only at a decreasing rate. Once diminishing
returns are reached, it will take successively larger amounts of
the variable factor to expand output by one unit.
A time period long enough to allow the firm to vary all factors of
production.
The change in total cost required to produce an additional unit of
output.
The implicit rate of return that must be paid to investors to induce them
to continuously supply the funds necessary to maintain a firm's
capital assets.
Individual in a firm who receives the excess of revenues over costs. A
residual claimant gains if the firm's costs are reduced and if revenues are increased.
Working at less than a normal rate of productivity, thus reducing output.
Shirking is more likely when workers are not monitored, so that
the cost of lower output falls on others.
A time period so short that a firm is unable to vary some of its factors
of production. The firm's plant size typically cannot be altered
in the short run.
Costs that have already been incurred as a result of past decisions. They
are sometimes referred to as historical costs.
The costs, both explicit and implicit, of all the resources used by the
firm. Total cost includes an imputed normal rate of return for
the firm's equity capital.
The total output of a good that is associated with alternative
utilization rates of a variable input.
Costs that vary with the rate of output. Examples include wages paid to
workers and payments for raw materials.
