Payments a firm must make or incomes it must provide to attract resources away from their best alternative production opportunities; include explicit and implicit costs.
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Explicit Costs
Payments to non-owners for resources they supply, such as wages and materials.
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Implicit Costs
The money payments that self-employed resources could have earned in their best alternative employments.
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Normal Profits
Considered an implicit cost; the minimum payments required to keep the owner's entrepreneurial abilities self-employed.
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Economic Profit
Total revenue less all costs (both explicit and implicit including a normal profit).
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Short Run
A time period too brief for a firm to alter its plant capacity; plant size is fixed.
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Long Run
A period of time long enough for a firm to change the quantities of all resources employed, including plant size.
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Law of Diminishing Returns
As successive units of a variable resource are added to a fixed resource, beyond a certain point, total output will decline.
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Total Product (TP)
The total quantity or total output of a particular good or service produced.
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Marginal Product (MP)
The change in total output resulting from each additional input of labor.
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Average Product (AP)
The total product divided by the total number of workers.
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Fixed Costs
Costs that do not vary with changes in short-run output.
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Variable Costs
Costs that change with the level of output, including labor and materials.
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Average Fixed Cost (AFC)
Total fixed cost divided by the level of output.
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Average Variable Cost (AVC)
Total variable cost divided by the level of output.
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Average Total Cost (ATC)
Total cost divided by the level of output; also equals AFC + AVC.
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Marginal Cost (MC)
The additional cost of producing one more unit of output.
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Economies of Scale
The cost advantages that firms experience as their output expands.
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Diseconomies of Scale
The increase in per unit costs as a firm becomes too large.
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Minimum Efficient Scale (MES)
The smallest level of output at which a firm can minimize its average costs in the long run.
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Constant Returns to Scale
When average total cost is constant as output changes.
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3-D Printing
A technology that allows for the creation of objects using computer-controlled devices, promising low costs and customization.
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