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technology
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The processes a firm uses to turn inputs into outputs of goods and services.
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technological change
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A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs.
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short run
answer
The period of time in which at least firm
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long run
answer
The period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant.
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total cost
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The cost of all the inputs a firm uses in production.
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variable costs
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Costs that change as output changes.
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fixed costs
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Costs that remain constant as output changes.
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opportunity costs
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The highest valued alternative that must given up to engage in an activety.
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explicit cost
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A cost that involves spending money.
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implicit cost
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A non-monetary opportunity cost
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production function
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The relationship between the inputs employed by a firm and the maximum output the firm can produce with those inputs.
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average total cost
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Total cost divided by the quantity of output produced.
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marginal product of labor
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The additional output a firm produces as a result of hiring one more worker.
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law of diminishing returns
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The principle that, at some point adding more of a variable input, such as labor, to the same amount of fixed input, such as capital, will cause the marginal product of the variable to decline.
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average product of labor
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The total output produced by a firm is divided by the quantity of workers.
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marginal cost
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The change in a firm's total cost from producing one more unit of good or service.
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average fixed cost
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Fixed cost divided by the quantity of output produced.
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average variable cost
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Variable cost divided by the quantity of output produced.
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long-run average cost curve
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A curve that shows the lowest cost at which the firm is able to produce a given quantity of output in the long run when no inputs are fixed.
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economics of scale
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The situation in which a firm's long-run average cost falls as it increases the quantity of output in the long run when no inputs are fixed.
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constant returns to scale
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The situation in which a firm's long-run average costs remain unchanged as its output.
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minimum efficient scale
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The level of output at which all economics of scale are exhausted.
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diseconomies of scale
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The situation in which a firm's long-run average cost rises as the firm increases output.
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perfectly competitive market
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A market that meets the conditions of having (1) many buyers and sellers, (2) all firms selling identical products (3) no barriers to new firms entering the market.
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price taker
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A buyer or seller that is unable to affect market price.
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profit
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total revenue minus total cost.
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average revenue
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Total revenue divided by the quantity of the product sold.
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marginal revenue
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The change in total revenue from selling one more unit of a product.
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sunk cost
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A cost that is already been paid and cannot be recovered.
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shutdown point
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The minimum point on a firm's average variable cost curve; if the price falls below this point, the firm shuts down production in the short term.
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economic profit
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A firm's revenues minus all of its implicit and explicit costs.
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economic loss
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The situation in which a firm's total revenue is less than its total cost, including all implicit costs.
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long-run competitive equilibrium
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The situation in which entry and exit of firms had resulted in the typical firm breaking even.
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long-run supply curve
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A curve that shows the relationship in the long run between the market price and the quantity supplied.
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allocative efficiency
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A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit.
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productive efficiency
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A situation in which a good or service is produced at the lowest possible cost.
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