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Production function
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A function that shows the maximum quantity of output that a firm can produce with given quantities of inputs.
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Marginal rate of technical substitution
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___________ of input X for input Y is the rate at which the firm can decrease Y for a small increase in X while keeping output the same.
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Increasing returns to scale
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A production function has increasing returns to scale if increasing all inputs by a fixed percentage increases output by more than that percentage.
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Labor-saving technological progress
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A change in the production function that makes the firm more productive and increases the marginal product of capital relative to the marginal product of labor.
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Economic cost
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The full opportunity cost of making a decision or producing output including both implicit and explicit costs.
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Cost minimization problem
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The problem of finding the input combination that produces a given amount of output at the lowest possible cost, given a fixed production function and fixed input prices.
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Total cost function
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A function that shows how the cost of production varies with the quantity of output (also known as a total cost curve).
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Economies of scale
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A firm has economies of scale if average costs decrease as output increases.
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Short run
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A period of time in which the level of at least one of the firm's inputs cannot be changed.
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Monopoly
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A market in which there is only one seller.
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Monopsony
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A market in which there is only one buyer.
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Barrier to entry
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A factor that allows a firm to enjoy monopoly power while preventing rivals from profitably entering the market.
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First degree price discrimination:
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Pricing each unit of a good sold to each consumer at exactly that consumer's maximum willingness to pay.
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Second degree price discrimination
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Charging different prices per unit of a good depending on how much a consumer has already purchased.
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Third degree price discrimination
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Charging different prices to different consumers groups or segments in a market.
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