Resources, such as labor, capital equipment, and raw materials, that are combined to produce finished goods

resources that are used to produce a good

a mathematical representation that shows the maximum quantity of output a firm can produce given the quantities of inputs that it might employ

technically efficient

labor requirements function

Diminishing marginal returns to labor

average product of labor

the average amount of output per unit of labor

the rate at which total output changes as the quantity of labor the firm uses is changed

law of diminishing marginal returns

the rate at which the quantity of capital can be reduced for every one-unit increase in the quantity of labor, holding the quantity of output constant

diminishing marginal rate of technical substitution

a feature of a production function in which the marginal rate of technical substitution of labor diminishes as the quantity of labor increases along an isoquant

A production function of the form Q =

aL + bK, where a and b are positive constants.

perfect complements

a production function of the form Q = AL^aK^b, where Q is the quantity of output from L units of labor and k units of capital and where A, a, and b are positive constants

constant elasticity of substitution (CES) production function

returns to scale

increasing returns to scale

constant returns to scale

a proportionate increase in all input quantities simultaneously that results in the same percentage increase in output

technological process

a change in a production process that enables a firm to achieve more output from a given combination of inputs or, equivalently, the same amount of output from less inputs

technological progress that decreases the amounts of labor and capital needed to produce a given output, without affecting the marginal rate of technical substitution of labor for capital

the value of the next best alternative that is forgone when another alternative is chosen

the sum of the firms explicit costs and implicit costs

cost-minimization problem

the period of time in which at least one of the firm's input quantities cannot be changed

isocost line

the set of combinations of labor and capital that yield the same total cost for the firm

normal input

inferior input

labor demand curve

price elasticity of demand for labor

long run total cost curve

long run average cost

indivisible input

marginal diseconomies

a situation in which a given percentage increase in output forces the firm to increase its spending on the services of managers by more than this percentage

minimum efficient scale

the smallest output at which long-run average cost curve attains its minimum point

short run total cost curve

total fixed cost curve

a production characteristic in which the total cost of producing given quantities of two goods in the same firm is less than the total cost of producing those quantities in two single product firms

economies of experience

experience elasticity

slope of the experience curve

total cost function

cost driver

a factor that influences or "drives" total or average costs

constant elasticity cost function

translog cost function