Total Cost

The cost of all the inputs a firm uses in production.

Fixed Cost

Cost that remains constant as output changes. (Short-Run)

Varible Cost

The cost that changes as output changes (Long-Run)

Total Cost Formula

TC = FC + VC

Long-Run

Period of time a firm can vary all it's inputs, adopt new technologies and increase or decrease the size of it's physical plant.

Short-Run

Period of time during which one firms output changes.

Oppertunity Cost

Highest value alternative that must be given up to engage in an activity.

Explicit Cost

Acost that involves spending money.

Implicit Cost

A nonmonetary oppertunity cost.

Production Function

The relationship between the inputs employed by a firm and the maximum output if can produce with the inputs.

Average Total Cost

Total cost divided by the quantity of output produced.

TC/Q

Marginal Product of Labor

The additional output a firm produces as a result of hiring one more worker.

Law of Diminishing Returns

Priniciple, that at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, it will cause the marginal product of the wariable input to decline.

Average Product of labor

The total output produced by a firm divided by quantity.

Total Output/ Q

Marginal Cost

Change in a firm's total cost from production of one more unit of good or service.

MC = ◊ TC/◊ Q