average variable cost (AVC)
Total variable cost divided by the number of units of output.
marginal cost (MC)
The increase in total cost resulting from increasing output by one unit.
technical efficiency
When a given number of inputs are combined in such a way as to
maximize the level of output.
cost minimization
An implication of profit maximization that firms choose the production
method that produces any given level of output at the lowest possible
cost.
principle of substitution
The principle that methods of production will change if relative prices of
inputs change, with relatively more of the cheaper input and relatively
less of the more expensive input being used.
long-run average cost (LRAC) curve
The curve showing the lowest possible cost of producing each level of
output when all inputs can be varied.
economies of scale
Reduction of long-run average costs resulting from an expansion in the