Production cost

Law of Diminishing Returns

Adding more workers to a fixed amount of equipment eventually causes each additional worker to produce less extra output.

Marginal Product of Labor (MPL)

The extra output produced by adding one more worker.

Average Product of Labor (APL)

Total output divided by the number of workers.

Fixed Cost (FC)

A cost that does not change when production changes.

Variable Cost (VC)

A cost that changes depending on how much a firm produces.

Total Cost (TC)

The total cost of production.

Average Fixed Cost (AFC)

Fixed cost per unit produced.

Average Variable Cost (AVC)

Variable cost per unit produced.

Average Total Cost (ATC)

Total cost per unit produced.

Marginal Cost (MC)

The extra cost of producing one more unit.

Short Run

A period when at least one input, such as equipment or factory size, is fixed.

Long Run

A period when all inputs can be changed.

Economies of Scale

Average cost decreases as production increases.

Diseconomies of Scale

Average cost increases as production increases.

Constant Returns to Scale

Average cost stays the same as production increases.

Perfect Competition

A market with many firms selling identical products. Firms are price takers.

Monopolistic Competition

A market with many firms selling similar but different products.

Oligopoly

A market controlled by a few large firms.

Monopoly

A market with one dominant firm and few close substitutes.

Price Taker

A firm that must accept the market price.

Barriers to Entry

Things that make it difficult for new firms to enter a market.

Product Differentiation

Making a product different from competitors' products.