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| Question | Answer |
| Firm | A productive organisation which sells its output of goods or services commercially. |
| Marginal returns of labour | The change in the quantity of total output resulting from the employment of one more worker, holding all the other factors of production fixed. |
| Law of diminishing returns | A short-term law which states that as a variable factor of production is added to a fixed factor of production, eventually both the marginal and average returns to the variable factor will begin to fall. |
| Average returns of labour | Total output divided by the total number of workers employed. |
| Total returns of labour | Total output produced by all the workers employed by a firm. |
| Productivity | Output per unit of input. |
| Labour productivity | Output per worker. |
| Returns to scale | The rate by which output changes if the scale of all the factors of production is changed. |
| Plant | An establishment, such as a factory, workshop or a retail outlet, owned and operated by a firm. |
| Increasing returns to scale | When the scale of all the factors of production employed increases, output increases at a faster rate. |
| Constant returns to scale | When the scale of all the factors of production employed increases, output increases at the same rate. |
| Decreasing returns to scale | When the scale of all the factors of production employed increases, output increases at a slower rate. |
| Economy of scale | As output increases, long-run average cost falls. |
| Diseconomy of scale | As output increases, long-run average cost rises. |
| Long-run average cost | Cost per unit of output incurred when all factors of production or inputs can be varied. |
| Optimum firm size | The size of firm capable of producing at the lowest average cost and thus being productively efficient. |
| Minimum efficient scale | The lowest output at which the firm is able to produce at the minimum achievable LRAC. |
| Internal economies and diseconomies of scale | Changes in long-run average costs of production resulting from changes in the size or scale of a firm or plant. |
| External economy of scale | A fall in long-run average costs of production resulting from the growth of the market or industry of which the firm is a part. |
| External diseconomy of scale | An increase in long-run average costs of production resulting from the growth of the market or industry of which the firm is a part. |
| Marginal cost | Addition to total cost resulting from producing one additional unit of output. |
| Average fixed cost | AFC = TFC / Q. |
| Average variable cost | AVC = TVC / Q. |
| Average total cost | ATC = AFC + AVC |
| Long-run marginal cost | Addition to total cost resulting from producing one additional unit of output when all the factors of production are variable. |
| Long-run average cost | Total cost of producing a particular level of output divided by the size of output when all the factors of production are variable. |
| Total revenue | All the money received by a firm from selling its total output. |
| Average revenue | Total revenue divided by output. |
| Marginal revenue | Addition to total revenue resulting from the sale of one more unit of the product. |
| Price-taker | A firm which is so small that it has to accept the ruling market price. If the firm raises its price, it loses all its sales; if it cuts its price, it gains no advantage. |
| Price-maker | When a firm faces a downward-sloping demand curve for its product, it possesses the market power to set the price at which it sells the product. |
| Quantity-setter | When a firm faces a downward-sloping demand curve for its product, it possesses the market power to set the quantity of the good it wishes to sell. |
| Profit | The difference between total sales revenue and total cost of production. |
| Profit maximisation | Occurs at the level of output at which total profit is the greatest. |
| Normal profit | The minimum profit a firm must make to stay in business, which is, however, insufficient to attract new firms into a market. |
| Abnormal profit | Profit over and above normal profit. AKA supernormal profit. |
| Technological change | A term that is used to describe the overall effect of invention, innovation and the diffusion or spread of technology in an economy. |
| Invention | Making something entirely new; something that did not exist before at all. |
| Innovation | Improves on or makes a significant contribution to something that has already been invented, thereby turning the results of invention into a product. |
| Mechanisation | Process of moving from a labour-intensive to a more capital-intensive method of production, employing more machines and fewer workers. |
| Automation | Automatic control where machines operate other machines. |
| Productive efficiency | The level of output at which average costs of production are minimised. |
| Dynamic efficiency | Occurs in the long run, leading to the development of new products and more efficient processes that improve productive efficiency. |
| Monopolistic competition | A market structure in which firms have many competitors, but each one sells a slightly different product. |
| Duopoly | Two firms only in a market. |
| Creative destruction | Capitalism evolving and renewing itself over time through new technologies and innovations replacing older technologies and innovations. |
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