Ch. 11 Key Terms

average fixed cost

fixed cost divided by quantity produced

average product

output per worker

average total cost

total cost divided by the quantity produced

average variable cost

variable cost divided by quantity produced

economic profit

(explicit and implicit revenue) - (explicit and implicit cost)

firm

an economic institution that transforms factors of production into goods and services

fixed costs

costs that are spent and cannot be changed in the period of time under consideration

law of diminishing marginal productivity

As more and more of a variable input is added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall

long-run decision

a firm chooses among all possible production techniques

marginal costs

the increases (decreases) in total cost from increasing (decreasing) the level of output by 1 unit

marginal product

the additional output that will be forthcoming from an additional worker, other inputs constant

production

the transformation of factors into goods and services

production function

the relationship between the inputs (factors of production) and outputs

production table

a table showing the output resulting from various combinations of factors of production or inputs

profit

total revenue - total cost

short-run decision

the firm is constrained in regard to what production decisions it can make

total cost

explicit payments to the factors of production plus the opportunity cost of the factors provided by the owners of the firm

total revenue

the amount a firm receives for selling its product or service plus any increase in the value of the assets owned by the firm

variable costs

costs that change as output changes