The total payments made to the owners of the factors of production when a good or service is produced
Short run
The period of time in which the firm is not able to vary at least one factor of production and the firm is not able to leave the market or enter a new market
Long run
The period of time in which a firm can vary all factors of production as well as enter new markets or exit the existing market
Fixed Costs
Expenses which remain the same regardless of the level of output produced, represented by a horizontal curve
Variable costs
Costs that increase as the amount of output increases, e.g. electricity, water, upward-sloping
Total Cost
The cost of production, calculated by adding the fixed and variable costs
Law of diminishing returns
Productivity will initially increase to a point when units of input are added, but if units of input continue to be added after the optimum point, then productivity begins to decrease as there is too much competition for the fixed factor of production, only applies in the short run
Marginal cost
The additional cost to the firm when it produces more unit of output
Average cost
Equal to total cost divided by the number of goods produced
