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Production function
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Function showing the highest output that a firm can produce for every specified combination of inputs.
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short run
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Period of time in which quantities of one or more production factors cannot be changed.
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Fixed Input
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Production factor that cannot be varied.
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Long run
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Amount of time needed to make all production inputs variable.
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economic cost
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Cost to a firm of utilizing economic resources in production.
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opportunity cost
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Cost associated with opportunities forgone when a firm's resources are not put to their best alternative use.
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sunk cost
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a cost that has already been committed and cannot be recovered
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Long-run average cost curve (LAC)
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Curve relating average cost of production to output when all inputs, including capital, are variable
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Short-run average cost curve (SAC)
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Curve relating average cost of production to output when level of capital is fixed
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Long- run marginal cost curve (LMC)
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Curve showing the change in long run total cost as output is increased incrementally
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Economies of scale
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Situation in which output can be doubled for less than a doubling of cost
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diseconomies of scale
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Situation in which a doubling of output requires more than a doubling of cost
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Product transformation curve
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Curve showing the various combinations of two different outputs (products) that can be produced with a given set of inputs
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Price taker
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Firm that has no influence over market price and thus takes the price as given
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Free entry (or exit)
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Condition under which there are no special costs that make it difficult for a firm to enter (or exit) an industry
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Cooperative
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Association of businesses or people jointly owned and operated by members for mutual benefit
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Condominium
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a housing unit that is individually owned but provides access to common facilities that are paid for and controlled jointly by an association of owners
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Profit
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Difference between total revenue and total cost
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Marginal revenue
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Change in revenue from a one unit increase in output
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Producer surplus
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Sum over all units produced by a firm of differences between the market price of a good and the marginal cost of production
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