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.
Explicit cost Implicit cost Accounting profit Economic profit Capital Implicit cost of capital Principle of “either–or” decision making Marginal cost Increasing marginal cost Marginal cost curve Constant marginal cost Decreasing marginal cost Marginal benefit Decreasing marginal benefit Marginal benefit curve Optimal quantity Profit-maximizing principle of marginal analysis Sunk cost Rational Bounded rationality Risk aversion Irrational Mental accounting Loss aversion Status quo bias | each additional unit of an activity yields less benefit than the previous unit. a cost that has already been incurred and is not recoverable. a graphical representation showing how the benefit from producing one more unit depends on the quantity that has already been produced. the principle that, in a decision between two activities, the one with the positive economic profit should be chosen. revenue minus the opportunity cost of resources used; usually less than the accounting profit. the total value of assets owned by an individual or firm—physical assets plus financial assets. revenue minus explicit cost. the additional benefit derived from producing one more unit of a good or service. the tendency to avoid making a decision. the additional cost incurred by 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 quantity that generates the highest possible total net gain. 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. the habit of mentally assigning dollars to different accounts so that some dollars are worth more than others. a cost that does not require the outlay of money; it is measured by the value, in dollar terms, of forgone benefits. each additional unit costs the same to produce as the previous one. a cost that requires an outlay of money. 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. 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. oversensitivity to loss, leading to unwillingness to recognize a loss and move on. each additional unit costs more to produce than the previous one. a graphical representation showing how the cost of producing one more unit depends on the quantity that has already been produced. 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. |