Fixed costs are those that do not vary with the level of output. Rent for the factory building is a fixed cost because it is incurred regardless of the number of units produced.

At the minimum point of ATC, the firm is operating at its most efficient level of output. At this point, the additional cost of producing one more unit (MC) is equal to the average cost of producing all units (ATC).

Sunk costs are those that have already been incurred and cannot be recovered. Cost of research and development is a sunk cost because it is incurred before the firm starts producing and selling its product.

The law of diminishing returns states that as more of a variable input is used, the marginal product of that input eventually decreases. This is because as more of the variable input is used, the fixed inputs become relatively scarce, and the additional units of the variable input become less productive.

In the short run, some inputs, such as plant and equipment, are fixed. This means that the firm cannot change the quantity of these inputs in the short run. In the long run, however, all inputs are variable. This means that the firm can change the quantity of all inputs in the long run.

At the minimum point of TC, the firm is operating at its most efficient level of output. At this point, the average cost of producing all units (ATC) is equal to the total cost of producing all units (TC).

Variable costs are those that vary with the level of output. Cost of raw materials is a variable cost because it varies with the number of units produced.

At the minimum point of AVC, the firm is operating at its most efficient level of output. At this point, the additional cost of producing one more unit (MC) is equal to the average variable cost of producing all units (AVC).

At the maximum point of TR, the firm is operating at its most profitable level of output. At this point, the additional revenue from selling one more unit (MR) is equal to the total revenue from selling all units (TR).

Explicit costs are those that are paid to outside suppliers, such as wages paid to workers and rent paid for the factory building. Implicit costs are those that are not paid to outside suppliers, but are instead paid to the firm's owners. For example, the opportunity cost of the firm's owner's time is an implicit cost.

At the minimum point of AFC, the firm is operating at its most efficient level of output. At this point, the additional cost of producing one more unit (MC) is equal to the average fixed cost of producing all units (AFC).

At the minimum point of TC, the firm is operating at its most efficient level of output. At this point, the additional cost of producing one more unit (MC) is equal to the total cost of producing all units (TC).

At the minimum point of AVC, the firm is operating at its most efficient level of output. At this point, the additional cost of producing one more unit (MC) is equal to the average variable cost of producing all units (AVC).

At the maximum point of TR, the firm is operating at its most profitable level of output. At this point, the average revenue from selling all units (AR) is equal to the total revenue from selling all units (TR).