| Term | Definition |
|---|
| Fixed Costs | Cost of production that does NOT vary with level of output. Fixed costs must be paid even with the firm does not produce. |
| Variable Costs | Costs that vary directly with the level of output. Variable costs equal zero when production ceases. |
| Labor Productivity | Output per worker per hour. |
| Total Costs | Sum of fixed and variable costs. TC = TFC + TVC |
| TC | Total Cost |
| TFC | Total Fixed Cost |
| TVC | Total Variable Cost |
| Average Costs | Costs per unit of output. |
| Average Total Costs | Total Costs divided by quantity. ATC = TC/Q |
| Average Fixed Costs | Total Fixed Costs divided by quantity. AFC = TFC/Q |
| Average Variable Costs | Total Variable Costs divided by quantity. AVC - TVC/Q |
| ATC | Average Total Costs (Declines, reaches a minimum, then increases as more of a good is produced.) |
| AFC | Average Fixed Costs (Declines as output increases.) |
| AVC | Average Variable Costs (Declines, reaches a minimum, then increases as more of a good is produced.) |
| Marginal Costs | The change in total costs divided the change in quantity. MC = change TC/change Q |
| MC | Marginal Costs |
| Economies of Scale | The property whereby long-run average total cost falls as the quantity of output increases (left-most downward sloping part of the long-run ATC) |
| Diseconomies of Scale | The property whereby long-run average total cost rises as the quantity of output increases (right-most upward sloping part of the long-run ATC) |
| Rightsizing | A successful effort to achieve an appropriate size at which the company performs most effectively. |
| Downsizing | Implementing a firm's decision to decrease its plant size to produce in the most efficient manner. |
| Outsourcing | Process of purchasing goods and services from outside vendors rather than producing the same goods or providing the same services within the organization |
| Constant Returns to Scale | Costs per unit of production are the same for any level of production. Changes in plant size do not affect the firm's ATC. |
| Explicit Costs | Input costs that require an outlay of money by the firm (e.g. rent). Money that actually leaves a firm in the productive process. |
| Implicit Costs | Input costs that do not require an outlay of money by the firm (e.g. interest forgone on money used). The opportunity costs associated with a firm's use of resources that it owns. |
| Accounting Profit | Total revenue minus total explicit costs. |
| Economic Profit | Total revenue minus total cost, including both explicit and implicit costs - accounting profit minus the opportunity costs. |
| Normal Profit | The opportunity cost of the resources supplied by the firm's owners; normal profit= accounting profit - economic profit |
Combine with other sets
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