The Cost of Production

Explicit Cost

-A payment made for the use of a resource.

Long Run

-A period of time long enough for all inputs to be varied.

Production Function

-A technological relationship expressing the maximum quantity of a good attainable from different combinations of factor inputs.

Fixed Cost

-Cost of production that don't change when the rate of output is change. -The cost of basic plant and equipment.

Variable Cost

-Costs of production that change when then rate of output is changed. -Labor and material costs.

Unit Labor Cost

-Hourly wage rate divided by output per labor hour.

Constant Returns to Scale

-Increases in plant size do not affect minimum average cost.

Marginal Product

-MMP -The change in total output associated with one additional unit of input.

Productivity

-Output per unit of input, for example, output per labor-hour.

Economies of Scale

-Reductions in minimum average costs that come about through increases in size of plant and equipment.

Factors of Production

-Resource inputs used to produce good and services, such as land, labor, capital, and entrepreneurship.

Profit

-The difference between total revenue and total cost.

Economic Profit

-The difference between total revenues and total economic costs.

Marginal Cost

-The increase in total cost associated with a one unit increase in production.

Law of Diminishing Returns

-The marginal physical product of a variable input declines as more of it is employed with given quantity of other inputs.

Total Cost

-The market value of all resources used to produce a good or service.

Normal Profit

-The opportunity cost of capital; zero economic profit.

Short Run

-The period in which the quantity of some inputs can't be changed.

(1) Complete this sentence: "The dilemma of machine operators without sewing machines illustrates a general principle of production . . ." [13th edition, page 138; 12th edition, page 125; 11th edition: page 119]

-The productivity of any factor of production depends on the amount of other resources available to it.

Economic Cost

-The value of all reassures used to produce a good or service.

Implicit Cost

-The value of resources used, even when no payment is made.

Average Total Cost

-Total cost divided by the quantity produced in a given time period.

Average Fixed Cost

-Total fixed cost divided by the quantity produced in a given time period.

Average Variable Cost

-Total variable cost divided by the quantity produced in a given time period.