Match each of the terms on the left with its definition on the right. Click on the term first and then click on the matching definition. As you match them correctly they will move to the bottom of the activity.
Economic profit Decreasing marginal benefit Marginal cost Accounting profit Marginal benefit Bounded rationality Sunk cost Status quo bias Irrational Increasing marginal cost Principle of “either–or” decision making Marginal cost curve Implicit cost Risk aversion Marginal benefit curve Loss aversion Profit-maximizing principle of marginal analysis Constant marginal cost Decreasing marginal cost Implicit cost of capital Capital Mental accounting Rational Optimal quantity Explicit cost | a cost that does not require the outlay of money; it is measured by the value, in dollar terms, of forgone benefits. a cost that requires an outlay of money. oversensitivity to loss, leading to unwillingness to recognize a loss and move on. a basis for decision making that leads to a choice that is close to but not exactly the one that leads to the best possible economic outcome; the “good enough” method of decision making. the total value of assests owned by an individual or firm—physical assets plus financial assets. the habit of mentally assigning dollars to different accounts so that some dollars are worth more than others. each additional unit costs more to produce than the previous one. the quantity that generates the highest possible total net profit. each additional unit of an activity yields less benefit than the previous unit. each additional unit costs less to produce than the previous one. the proposition that in a profit-maximizing “how much” decision the optimal quantity is the largest quantity at which marginal benefit is greater than or equal to marginal cost. a cost that has already been incurred and is not recoverable. A sunk cost should be ignored in decisions about future actions. the additional benefit derived from producing one more unit of a good or service. describes a decision maker who chooses an option that leaves him or her worse off than choosing another available option. the willingness to sacrifice some economic payoff in order to avoid a potential loss. describes a decision maker who chooses the available option that leads to the outcome he or she most prefers. the tendency to avoid making a decision and sticking with the status quo. the opportunity cost of the use of one’s own capital—the income earned if the capital had been employed in its next best alternative use. a graphical representation showing how the cost of producing one more unit depends on the quantity that has already been produced. revenue minus the opportunity cost of resources used; usually less than the accounting profit. each additional unit costs the same to produce as the previous one. revenue minus explicit cost. the principle that, in a decision between two activities, the one with the positive economic profit should be chosen. the additional cost incurred by producing one more unit of a good or service. a graphical representation showing how the benefit from producing one more unit depends on the quantity that has already been produced. |