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Technology
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the process a firm uses to turn into outputs of goods and services.
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Technological change
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a change in the ability of a firm to produce a given level of output with a given quantity of inputs
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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 period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant
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Total cost
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the cost of all the inputs a firm uses in production
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Variable cost
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costs that change as output changes
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Fixed costs
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costs that remain constant as output changes
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Opportunity costs
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the highest-valued alternative that must be given up to engage in an activity.
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Explicit cost
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a cost that involves spending money
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Implicit cost
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nonmonetary opportunity cost
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Average Total cost
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total cost divided by the quantity of output
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Production function
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relationship between the inputs employed by a firm and the maximum output it can produce with those inputs
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Marginal product of labor
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the additional output a firm produces as a result of hiring one more worker
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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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Average product of labor
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the total output produced by a firm divided by the quantity of workers
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Marginal cost
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the change in a firm's total cost from producing one more unit of a good or service
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Average fixed cost
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fixed cost divided by the quantity of output produced
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Average variable cost
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variable cost divided by the quantity of output produced
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Long run Average costs curve
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A curve that shows the lowest cost at which a firm is able to produce a given quantity of output i the long run, when no inputs are fixed
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Economies of scale
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the situation when a firm's long-run average costs fall as it increases the quantity of output it produces
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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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Minimum efficient scale
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the level of output at which all economies of scale are exhausted
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Diseconomics of Scale (Decreasing Returns to Scale)
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the situation in which a firms long run average costs rise as the firm increases output.
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