Micro Module 7

Increasing Marginal Returns

A characteristic of production whereby the marginal product of the next unit of a variable resource utilized is greater than that of the previous variable resource

Diminishing Marginal Returns

A characteristic of production whereby the marginal product of the next unit of a variable resource utilized is less than that of the previous variable resource

Economies of Scale

A condition in which the long-run average total cost of production decreases as production increases

Diseconomies of Scale

A condition in which the long-run average total cost of production increases as production increases

Constant Returns to Scale

A condition in which the long-run average total cost of production remains constant as production increases

Short-Run Average Total Cost Curve

A curve showing the average total cost for different levels of output when at least one input of production is fixed, typically plant capacity

Long-Run Average Total Cost Curve

A curve showing the lowest average total cost possible for any given level of output when all inputs of production are variable

Variable Costs

Costs that change with the amount of output produced, increasing as production increases and decreasing as production decreases

Fixed Costs

Costs that do not change with the amount of output produced

Explicit Costs

Monetary payments made by individuals, firms, and governments for the use of land, labor, capital, and entrepreneurial ability owned by others. Also known as accounting costs.

Marginal Cost

The additional cost associated with one more unit of an activity

Marginal Product

The additional output produced as a result of utilizing one more unit of a variable resource

Average Product

The average amount of output produced per unit of a resource employed; total product divided by number of units of a resource employed

Economic Costs

The costs associated with the use of resources; the sum of explicit and implicit costs

Minimum Efficiency Scale

The lowest level of output at which the long-run average total cost is minimized

Implicit Costs

The opportunity costs of using owned resources; costs for which no monetary payment is explicitly made

Total Cost

The sum of fixed and variable costs of production

Long Run

The time period in which all inputs can be changed

Short Run

The time period in which at least one input is fixed, but other inputs can be changed

Total Product

The total amount of output produced within a given amount of resources

Average Total Cost

Total cost divided by the amount of output produced

Average Fixed Cost

Total fixed cost divided by amount of output produced

Economic Profit (As measure)

Total revenue minus economic costs, which include both explicit and implicit costs of production.

Accounting Profit

Total revenue minus the explicit costs of production.

Average Variable Cost

Total variable cost divided by the amount of output produced