Minimum Efficient Scale (MES) is the smallest level of production where a company achieves its lowest possible average
Glossary Category: Firm Theory
subnormal profit
Subnormal profit (also known as an economic loss or abnormal loss) occurs when a business’s Total Revenue (TR)
average product
Average Product (AP) is the amount of output produced by each unit of a variable input, usually labour.
average variable costs
Average Variable Cost (AVC) is the cost of variable inputs for every unit produced. It is calculated by
total variable costs
Total Variable Costs (TVC) are business expenses that change directly based on the level of output produced. These
average fixed costs
Average Fixed Cost (AFC) represents the fixed cost per unit of output. It is calculated by dividing the
total fixed costs
Total Fixed Costs (TFC) are business expenses that do not change based on how much a company produces.
returns to scale
Returns to scale measures how much the total output changes when you increase all production inputs by the
diseconomies of scale
Diseconomies of scale occur when a company grows so large that its average costs begin to increase rather
external economies of scale
External economies of scale are cost savings that happen when an entire industry grows. These benefits are shared