average fixed costs and the average variable costs

total cost the sum of fixed and variable costs of production

total product synonym for a firm’s output

variable cost cost of production that increases with the quantity produced; the cost of the variable inputs

variable inputs factors of production that a firm can easily increase or decrease in a short period of time

Key Concepts and Summary

7.1 Explicit and Implicit Costs, and Accounting and Economic Profit

Privately owned firms are motivated to earn profits. Profit is the difference between revenues and costs. While

accounting profit considers only explicit costs, economic profit considers both explicit and implicit costs.

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7 • Key Concepts and Summary 183

7.2 Production in the Short Run

Production is the process a firm uses to transform inputs (e.g., labor, capital, raw materials, etc.) into outputs. It
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