Production: the process by which inputs are combined, transformed, and turned into outputs • Firm: an organization that comes into being when a person or group of people decides to produce a good or service to meet a perceived demand • Profit: the difference between total revenue and total cost • Total revenue: the amount received from the sale of the product (qxP) • Total cost: the total of out of pocket cots and opportunity cost of all factors of production • Normal rate of return: a rate of return on capital that is just sufficient to keep owners and investors satisfied. For relatively risk free firms, it should be nearly the same as the interest rate on risk-free government bonds • Short run: the period of time for which two conditions hold: the firm is operating under a fixed scale of production and firms can neither enter no exit an industry • Long run: the period of time for which there are no fixed factors of production: firms can increase
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risk-free government bonds, variable input declines, Production Average product, total production function, total product/ total