MARGINAL RETURNS: The change in the quantity of total product resulting from a

unit change in a variable input, holding all other inputs fixed. You might recognize this as
the definition of marginal product. It is. Marginal returns is an older and more generic
term for marginal product. While marginal product has largely replaced marginal returns
in most discussions of short-run production, the phrase does persist in a few terms like
the law of diminishing marginal returns. When you come upon the phrase marginal
returns, more often than not, it's probably referring to marginal product.

  LAW OF DIMINISHING MARGINAL RETURNS: A principle stating that as more and more
of a variable input is combined with a fixed input in short-run production, the marginal
product of the variable input eventually declines. This is THE economic principle
underlying the analysis of short-run production for a firm. Among a host of other things,
it offers an explanation for the upward-sloping market supply curve. How does the law of
diminishing marginal returns help us understand supply? The law of supply and the
upward-sloping supply curve indicate that a firm needs to receive higher prices to
produce and sell larger quantities. Why do they need higher prices?

Economies of scale refer to the situation wherein, as the quantity of output

goes up, the cost per unit goes down. In effect, economies of scale are the
cost advantages that are achieved when there is an expansion of the size of
production. The cost advantages translate to improved efficiency in
production, which can give a business a competitive advantage in its industry
of operations, which, in turn, could translate to lower costs and higher profits
for the business.
 MARGINAL REVENUE: The change in total revenue resulting from a change in
the quantity of output sold. For a perfectly competitive firm, marginal revenue is
equal to price.