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internal benefits
the benefits of a project from the perspective of the economic actor making the decisions
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external benefits
the benefits of a project that accrue to persons, or entites such as the environment, that are not among the economic actors directly repsonsible for the activity
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net benefits
total benefits minus total cost. A general guideline for socially beneficial production is to choose productive activities that maximize net benefits
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cost/benefit analysis
a procedure, often used by governements, for attempting to determine the net benefits of the proposed projects
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revenue
the amount recieved from sales of produced goods and services
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economic profit
revenue less economic costs
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marginal benefit
the benefit that accrues from producing the last unit of output
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marginal revenue
the revenue recieved from the last unit sold. Given certain assumptions, profits are maximized when marginal cost equalsmarginal revenue (the revenue from the last unit sold). This priniciple is abbriviated as "set MC = MR." for price-taking firms, the profit-maximization principle can be abbreviated as "set MC = P."
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convexity
math term used to describe the special assumptions neccessary for marginal thinking to lead to maximization of net benefits. With convexity, net benefits can be maximized by taking incremental steps along a smooth path
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discrete decisons
desicions that involve "jumps" between different distict choices
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nonconvexity
a math term used to describe a number of situations in which marginal thinking is an inadequate quide to maximize of net benefits
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static analysis
analysis that does not take into account the passage of time
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dynamic analysis
analysis that takes into account the passage of time
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sunk cost
an expenditure that was made or commited to in the past and is now irreversible
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path dependence
a condition that exists when economic developments depend on particularities of past developements - tha is, when "history matters"
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switching costs
the transaction costs associated with a change in production technology
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network externalities
(in production) a property that a particular tech exhibits when it is advantages to adopt that tech because other economic actors have adopted it
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capital constraint
(in production) a situation in which an inablilty to obtain financing imposes limits on produciton decsions
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break-even price
the price at which a profit-maximizing firm makes zero economic profits
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