7.6: Key Terms

Example and Directions

Words (or words that have the same definition)	The definition is case sensitive	(Optional) Image to display with the definition [Not displayed in Glossary, only in pop-up on pages]	(Optional) Caption for Image	(Optional) External or Internal Link	(Optional) Source for Definition
(Eg. "Genetic, Hereditary, DNA ...")	(Eg. "Relating to genes or heredity")		The infamous double helix	https://bio.libretexts.org/	CC-BY-SA; Delmar Larsen

Glossary Entries

Word(s)	Definition	Image	Caption	Link	Source
accounting profit	total revenues minus explicit costs, including depreciation
average profit	profit divided by the quantity of output produced; also known as profit margin
average total cost	total cost divided by the quantity of output
average variable cost	variable cost divided by the quantity of output
constant returns to scale	expanding all inputs proportionately does not change the average cost of production
diminishing marginal productivity	general rule that as a firm employs more labor, eventually the amount of additional output produced declines
diseconomies of scale	the long-run average cost of producing output increases as total output increases
economic profit	total revenues minus total costs (explicit plus implicit costs)
economies of scale	the long-run average cost of producing output decreases as total output increases
economies of scale	the long-run average cost of producing output decreases as total output increases
explicit costs	out-of-pocket costs for a firm, for example, payments for wages and salaries, rent, or materials
factors of production, or inputs	resources that firms use to produce their products, for example, labor and capital
firm	an organization that combines inputs of labor, capital, land, and raw or finished component materials to produce outputs.
fixed cost	cost of the fixed inputs; expenditure that a firm must make before production starts and that does not change regardless of the production level
fixed inputs	factors of production that can’t be easily increased or decreased in a short period of time
implicit costs	opportunity cost of resources already owned by the firm and used in business, for example, expanding a factory onto land already owned
long run	period of time during which all of a firm’s inputs are variable
long-run average cost (LRAC) curve	shows the lowest possible average cost of production, allowing all the inputs to production to vary so that the firm is choosing its production technology
marginal cost	the additional cost of producing one more unit; mathematically, MC=ΔTC/ΔL
marginal product	change in a firm’s output when it employees more labor; mathematically, MC=ΔTC/ΔL
private enterprise	the ownership of businesses by private individuals
production	the process of combining inputs to produce outputs, ideally of a value greater than the value of the inputs
production function	mathematical equation that tells how much output a firm can produce with given amounts of the inputs
production technologies	alternative methods of combining inputs to produce output
revenue	income from selling a firm’s product; defined as price times quantity sold
short run	period of time during which at least one or more of the firm’s inputs is fixed
short-run average cost (SRAC) curve	the average total cost curve in the short term; shows the total of the average fixed costs and the average variable costs
total cost	the sum of fixed and variable costs of production
total product	synonym for a firm’s output
variable cost	cost of production that increases with the quantity produced; the cost of the variable inputs
variable inputs	factors of production that a firm can easily increase or decrease in a short period of time