Key Terms

total revenue
the amount a firm receives for the sale of its output
 
total cost
the market value of the inputs a firm uses in production
 
profit
total revenue minus total cost
 
explicit costs
input costs that require an outlay of money by the firm
 
implicit costs
input costs that do not require an outlay of money by the firm
 
economic profit
total revenue minus total cost, including both explicit and implicit costs
 
accounting profit
total revenue minus total explicit cost
 
production function
the relationship between quantity of inputs used to make a good and the quantity of output of that good
 
marginal product
the increase in output that arises from an additional unit of input
 
diminishing marginal product
the property whereby the marginal product of an input declines as the quantity of the input increases
 
fixed costs
costs that do not vary with the quantity of output produced
 
variable costs
costs that do vary with the quantity of output produced
 
average total cost
total cost divided by the quantity of output
 
average fixed cost
fixed costs divided by the quantity of output
 
average variable cost
variable costs divided by the quantity of output
 
marginal cost
the increase in total cost that arises from an extra unit of production
 
efficient scale
the quantity of output that minimizes average total cost
 
economies of scale
the property whereby long-run average total cost falls as the quantity of output increases
 
diseconomies of scale
the property whereby long-run average total cost rises as the quantity of output increases
 
constant returns to scale
the property whereby long-run average total cost stays the same as the quantity of output changes