Chapter 7—Production and Costs I. Explicit Cost and Implicit Cost A. An explicit cost is incurred when an actual (monetary) payment is made. An implicit cost represents the value of resources used I production for which no actual (monetary) payment is made. II. Economic Profit and Accounting Profit A. Economic profit is the different between the total revenue and the total cost, including both explicit and implicit costs. Accounting profit is the difference between total revenue and explicit costs. Economic profit is usually lower (never higher) than accounting profit. Economic profit (not accounting profit) motivated economic behavior. III. Production and Costs in the Short Run A. The short run is a period I which some inputs are fixed. The long run is a period in which all inputs can be varied. The costs associated with fixed and variable inputs re referred to as fixed costs and variable costs, respectively. B. Marginal cost is the charge in total cost that results from a change in output.
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