Economics - Production

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

Dis-economies 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 on 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

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 resource employed; total product divided by the number of units of a resource employed

Economic Costs

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

Marginal Cost

The extra or additional cost associated with the production of an additional unit of output

Minimum Efficiency Scale

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

Average total cost

Total cost divided by the amount of output produced; total cost per unit

Average Fixed Cost

Total fixed cost divided by the amount of output produced; fixed cost per unit

Economic Profit

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; variable cost per unit

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 resources owned by others

Total Cost

The sum of fixed and variable costs of production

Total Product

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

Implicit Costs

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