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