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IMPLICIT COST: An opportunity cost that does NOT involve a money payment or a market transaction. This should be contrasted with explicit cost that DOES involve a money payment or a market transaction. The common misconception among non-economists out there in the real world is that the term "cost" is synonymous with the term "payment," that is, all costs are explicit costs, to be a cost you have to give up some money. Well, I'm here to tell you that this isn't true. Cost is opportunity cost. It's the satisfaction NOT received from activities NOT pursued. It's the value of foregone production. And not all opportunity costs involve a money payment.

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Lesson 16: Perfect Competition | Unit 4: Long-Run Equilibrium Page: 20 of 28

Topic: Adjustment <=PAGE BACK | PAGE NEXT=>

  • Conditions to maximize profit by adjustment plant size in the long run:

    • Long-Run Profit Maximization: First, the firm maximizes its profit in the long run by equating marginal revenue (MR) and long-run marginal cost (LRMC).

    • Short-Run Profit Maximization: Second, the firm maximizes its profit in the short run by equating marginal revenue (MR) and short-run marginal cost (SRMC).

    • Marginal Cost Equality: Third, combining the first two conditions, means that the firm has equality between short-run marginal cost (SRMC) and long-run marginal cost (LRMC).

    • Efficient Plant Size: Fourth, the firm has also selected the most efficient plant size for short-run production given its long-run scale of operations. In other words, his short-run average total cost (SRATC) and long-run average cost (LRAC) are also equal.

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VOTING PARADOX

The possibility that the voting preferences of a group of individuals results in an inconsistent, or intransitive, ranking. While consistent, or transitive, ranking of preferences is expected for individuals, such might not occur for groups of voters. If a consumer prefers good A to good B and good B to good C, then it makes logical sense that the consumer also prefers good A to good C. The voting paradox arises because a group of individuals might prefer A to B and B to C, but then prefer C to A, an inconsistent and intransitive ranking of preferences. Other related voting problems identified by the study of public choice includes the median voter principle, logrolling, and voter apathy (due to rational ignorance and rational abstention).

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