print, convenient purchasing, and prompt delivery by mail. Amazon holds its inventories in huge warehouses in low-

rent locations around the world. The warehouses are highly computerized using robots and relatively low-skilled

workers, making for low average costs per sale. Amazon demonstrates the significant advantages economies of

scale can offer to a firm that exploits those economies.
182 7 • Key Terms

Key Terms

accounting profit total revenues minus explicit costs, including depreciation

average profit profit divided by the quantity of output produced; also known as profit margin

average total cost total cost divided by the quantity of output

average variable cost variable cost divided by the quantity of output

constant returns to scale expanding all inputs proportionately does not change the average cost of

production

diminishing marginal productivity general rule that as a firm employs more labor, eventually the amount of

additional output produced declines
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