ECON Module 6

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 of scales

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 outputs when at least one input of production is fixed, typically plant capacity.

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 (MC)

The additional cost associated with 1 more unit of an activity. For production, it is the change in total cost due to the production of 1 more unit of output.

marginal product (MP)

The additional output produced as a result of utilizing 1 more unit of a variable resource (i.e., labor or capital).

average product (AP)

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

average total cost (ATC)

Total cost (TC) divided by the amount of output produced; total cost per unit.

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.

short run

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

total product (TP)

The total amount of output produced with a given amount of resources.

average fixed cost (AFC)

Total fixed cost (TFC) divided by the amount of output produced; fixed cost per unit.

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 (AVC)

Total variable cost (TVC) divided by the amount of output produced; variable cost per unit.

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 productions are variable.