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production function
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the relationship between the quantity of inputs a firm uses and the quantity of output it produces
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fixed input
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an input whose quantity is fixed for a period of time and cannot be varied
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variable input
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an input whose quantity the firm can vary at any time
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long run
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the time period in which all inputs can be varied
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short run
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the time period in which at least one input is fixed
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total product curve
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shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input
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marginal product
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the additional quantity of output that is produced by using one more unit of that input
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diminishing returns to an input
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when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input
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fixed cost
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a cost that does not depend on the quantity of output produced
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variable cost
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a cost that depends on the quantity of output produced
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total cost
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the sum of the fixed cost and the variable cost of producing that quantity of output
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total cost curve
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shows how total cost depends on the quantity of output
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marginal cost
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the additional cost incurred by producing one more unit of that good or service
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average total cost
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total cost divided by quantity of output produced
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U-shaped average total cost
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falls at low levels of output, then rises at higher levels
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average fixed cost
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the fixed cost per unit of output
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average variable cost
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the variable cost per unit of output
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minimum-cost output
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the quantity of output at which average total cost is lowest - the bottom of the U-shaped average total cost curve
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long-run average total cost curve
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shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output
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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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decreasing returns to scale
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when long-run average total cost increases as output increases
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constant returns to scale
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when long-run average total cost is constant as output increases
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network externality
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when the value of the good to an individual is greater when a large number of other people also use that good
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