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Technology
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The processes a firm uses to turn inputs into outputs of goods an services.
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Technological Change
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A 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
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The period of time during which at least one of a firm's inputs 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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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 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
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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 it 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 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 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 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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the situation when a firm's long-run average costs fall as it increases the quantity of output it produces
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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
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the level of output at which all economies 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 costs rise as the firm increases output
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