| Term | Definition |
|---|
| Principle | A simple truth that most people understand and accept. |
| Opportunity cost | The alternative uses of resources that are lost when a decision is made about how to use those resources. |
| Marginal benefit | The extra benefit resulting from a small increase in some activity. |
| Marginal cost | The change in total cost resulting from a change in the quantity of output (product) produced by a firm in the short run, found by dividing the change in total cost by the change in output. |
| Principle of diminishing returns | As one input increases while the other inputs are held fixed, output increases but at a decreasing rate. |
| Total product curve | A curve showing the relationship between the quantity of labor and the quantity of output. |
| Marginal product of labor | The change in output from one additional worker. |
| Short run | A period of time over which one or more factors of production is fixed and one or more is variable; in most cases, a period of time over which a firm cannot modify an existing facility or build a new one. |
| Long run | A period of time long enough that a firm can change all the factors of production, meaning that a firm can modify its existing production facility or build a new one. |
| Spillover | A cost or benefit experienced by people who are external to the decision about how much of a good to produce or consume. |
| Nominal value | The face value of an amount of money |
| Real value | The value of an amount of money in terms of the quantity of goods the money can buy. |
| Marginal factor cost | The change in total factor cost resulting from a change in the quantity of factor input, found by dividing the change in total factor cost by the change in quantity of factor input. |
| Marginal Revenue Product | The change in total revenue resulting from a unit change in a variable input (eg, worker), ceteris paribus, found by dividing the change in total revenue by the change in the variable input. |
| Marginal physical product | The change in the quantity of total product resulting from a unit change in a variable input (eg, worker), ceteris paribus, found by dividing the change in total product by the change in the variable input |
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