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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 time period in which all inputs can be varied
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production function
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Q = F(K, L, A). Q = Quantity of output, K = quantity of capital, L = quantity of labor, A = land, F = current technology
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marginal product of labor
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the change in output from hiring one additional unit of labor
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diminishing marginal returns
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a level of production in which the marginal product of labor decreases as the number of workers increases
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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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Fixed Cost (FC)
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a cost that does not change, no matter how much of a good is produced
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Variable Cost (VC)
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the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold
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Total Cost (TC)
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fixed cost + variable cost (FC+VC)
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Average Fixed Cost (AFC)
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fixed cost divided by quantity produced (FC/Q)
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Average Variable Cost (AVC)
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Variable cost divided by the quantity produced (VC/Q)
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Average Total Cost (ATC)
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Total cost divided by the quantity produced (TC/Q) (AFC+AVC)
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Marginal Cost (MC)
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the change in total costs associated with a one-unit change in output (Change in Total Cost/Change in quantity produced)
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Increasing Returns to Scale
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when long-run average total cost declines 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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Decreasing Returns to Scale
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when long-run average total cost increases as output increases
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economies of scale
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factors that cause a producer's average cost per unit to fall as output rises
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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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