the processes a firm uses to turn input into outputs of goods and services
a positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs
A period during which at least one of a firm's inputs is fixed
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
the costs of all the inputs a firm uses in production
a cost that changes when the business rate of operation or output changes
a cost that does not change as output is increased or decreased
the highest-valued alternative that must be given up to engage in an activity
a cost that involves spending money
a nonmonetary opportunity cost
the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs
Average Total Cost
total cost divided by the quantity of output produced
Marginal Product of Labor
the additional output a firm produces as a result of hiring one more worker
Law of Diminishing Returns
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.
Average Product of Labor
the total output produced by a firm divided by the quantity of workers
The change in total cost divided by the change in quantity.
Average Fixed Cost
fixed cost divided by the quantity of output produced
Average Variable Cost
variable cost divided by the quantity of output produced
Long-run average cost curve
A curve showing the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed
Economies of Scale
the situation when a firm's long-run average costs fall as it increases output.
Constant Returns to Scale
the situation when a firm's long-run average cost remains unchanged as it increases output.
Minimum Efficient Scale
the level of output at which all economies of scale are exhausted