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Inputs
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the resources—such as labor, money, materials, and energy—that are converted into outputs
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Outputs
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the goods, services, and ideas that result from the conversion of inputs
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Technology
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the process a firm uses to turn inputs into outputs of goods and services
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Short run
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the time period in which at least one input is fixed
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Long run
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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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positive technological change
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able to produce more output using the same inputs or the same output using fewer inputs
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Total Cost
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the cost of all the inputs a firm uses in production (TC=FC+VC)
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Fixed Costs
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the costs of the fixed inputs; remain constant as output changes (rent)
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Variable Costs
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the costs of the variable inputs; change as output changes (shipping supplies)
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Opportunity cost
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The highest-valued alternative that must be given up to engage in an activity.
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Explicit cost
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a cost that involves spending money (accounting costs); e.g. Tuition= $20,000 expenditure
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Implicit cost
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when a firm experiences 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 it can produce with those inputs
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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. MPL=(row qty - row qty above)
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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 a fixed input, such as capital, will cause the marginal product of the variable input to decline
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Average product of labor
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the total output produced by a firm 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 a good or service
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Average total cost
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total cost divided by the quantity of output produced (ATC=AFC+AVC)
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Average Fixed Cost (AFC)
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fixed cost divided by the quantity of output produced
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Average Variable Cost (AVC)
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variable cost divided by the quantity of output produced
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Long Run Costs
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all costs are variable, no fixed costs
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Long-run average cost curve
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shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed
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Economies of scale
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long-run average total cost falls as the quantity of output increases
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Diseconomics of Scale
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long-run average total cost increases as output increases
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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 it increases output
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Minimum efficient scale (MES)
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the level of output at which all economies of scale are exhausted
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Marginal Product & Marginal Cost
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when the MARGINAL PRODUCT of labor is RISING the MARGINAL COST of production is FALLING. When MARGINAL PRODUCT is FALLING, MARGINAL COST is RISING.
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