DEFINITION OF TERMS

Average Cost - this is the total cost incurred in production of a unit of the output;
derived by dividing total cost by the quantity of output

Average variable cost - the variable cost incurred per unit of the output; derived by
dividing total variable cost by the quantity of output

Average fixed cost - this is the fixed cost incurred per unit of the output; derived by
dividing total fixed cost by the quantity of output

Average revenue - this is the revenue received from a unit of the output; total
revenue from sales divided by the number of the unit sold

Break-even point - the state wherein the firm simply recovers all the costs and
hence does not realize any profit

Cost of production - all expenses incurred in the process of creating goods and
services

Diminishing marginal productivity law - the principle stating that if the input of the
one resource is increased by equal increments per unit of time while
the quantities of other inputs are held constant, the marginal product
of the valuable resource will decrease

Explicit cost - the cost of resources hired or purchased by a firm for use in the
process of production

Implicit cost - the cost of self owned, self employed resources used by a firm in
the process of production

Fixed cost - these are cost incurred in the use of fixed inputs and also called
interest , on borrowed capital, maintenance, depreciation of capital
equipment and salaries of permanent personnel

Long run period - a period long enough for the firm to be able to vary the quantities of
all resources it uses.

Marginal cost - the cost of producing an additional unit of the output

Marginal productivity theory - the theory that the private enterprise, economy
resource unit are paid prices equal to either their values of marginal
products of their marginal revenue products.

Per unit return - the revenue from the sales of one unit of the output

Production - the process of making economic goods and services for the
satisfaction of human wants
Production function/schedule - the technical relationship relating the best output
obtainable from every set of inputs of factors of production

Profit/net return - the difference between the firm’s total receipts and its total cost
when total receipts exceed total cost

Profit maximization situation - the level of production of a firm in which marginal cost
is equal to marginal revenue (MC=MR)

Short run period - a period so short that a firm is unable to vary the quantities of
some of the resources that it uses

Total cost - the sum of fixed and variable costs; the total cost incurred in using
the fixed and variable inputs

Total revenue/returns - total quantity sold multiplied by the average price

Variable cost - the cost of the variable resources/inputs used by a firm

Very short run - a time period so short that the quantity of a good or service
placed on a market cannot be changed; also the time so short that
the firm cannot vary the quantities of the inputs used