DEFINITION OF TERMS:

1. optimal decision is a decision that leads to at least as good a known or expected

outcome as all other available decision options.
2. Spreadsheets- a table that is displayed electronically in the format of an
accounting income statement or balance sheet.
3. equation is an expression of the functional relationship or connection among
economic variables
4. dependent variable- A factor or phenomenon that is changed by the effect of an
associated factor or phenomenon called the independent variable.
5. independent variable - The values that can be changed or controlled in a given model
or equation. They provide the "input" which is modified by the model to change the
"output”.
6. marginal revenue- is the change in total revenue associated with a 1 unit change in
output.
7. revenue maximization –occurs at the output level that generates the greatest total
revenue.
8. cost functions- relations between costs and outputs.
9. short run functions- used for day-to-day operating decisions.
10. long-run- costs functions- used for long term planning.
11. short run- operating period during which availability of at least of at least one input is fixed.
12. long run- the firm has complete flexibility with respect to input use.
13. total costs – compromise fixed and variable costs/expenses.
14. fixed costs- do not vary with pout put.
15. variable costs- fluctuate with output.
16. marginal cost- is the change in total cost and associated with a1- unit change in output.
17. average cost - is simply total cost divided by the number of units produced.
18. average cost minimization- the lowest possible average cost being achieved.
19. total profit- the difference between total revenue and total cost.
20. marginal profit – change in total profit due to a 1- unit change in output.
21. profit maximization rule - states that if a firm chooses to maximize its profits, it must
choose that level of output where Marginal Cost (MC) is equal to Marginal Revenue
(MR) and the Marginal Cost curve is rising.
22. break- even points - represents the sales amount—in either unit (quantity) or revenue
(sales) terms—that is required to cover total costs, consisting of both fixed and variable
costs to the company.
23. incremental change- change resulting in managerial decision.
24. incremental profit – is the profit gain or loss associated with a given managerial
decisions.
25. average cost minimization- is a basic rule used by producers to determine what mix
of labor and capital produces output at lowest cost.