The processes a firm uses to turn inputs into outputs of goods and services.
A change in the ability of a firm to produce output with a given quantity of inputs.
The period of time during which at least one of the firms inputs is fixed.
A period of time long enough to allow a firm to vary all of its inputs, to adopt new technology and increase or decrease the size of its physical plant.
The cost of all the inputs a firm uses in production.
Costs which change as the quantity of output changes I.e. labour
Costs which remain constant as the quantity of output changes
Total cost formula
Total cost = fixed costs + variable costs TC = FC+VC
The highest valued alternative that must be given up to engage in an activity.
A cost that involves spending money
A non monetary opportunity cost
The relationship between the inputs employed by the firm and the maximum output it can produce with those inputs.
Average total cost
Total cost divided by the quantity of input produced
Marginal product of labour
The additional output a firm produces as a result of hiring one more worker.
Law of diminishing returns
The principle that, at some point, adding more of a variable input, such as labour, to the same amount of fixed input, such as capital, will cause the marginal product of the variable to decline.
Average product of labour
The total output produced by a firm divided by the quantity of workers.
The additional cost to a firm of producing one more unit of a good or service. MC = CHANGE IN TC/CHANGE IN QTY
When the marginal product of labour is rising, the marginal cost of output will be falling.
When the marginal product of labour is falling, the marginal cost of production will be rising.
Diseconomies of scale
Cost Curve to remember