A firm may face inflexibility in the short run, with some factors being fixed in quantity and only some being variable.
The long run is defined in this context as the period in which a firm is free to vary all of its factors, in the short run at least one is fixed.
The production function shows how output can be efficiently produced through the input factors of production.
The law of diminishing returns states, if a firm increases the input of a variable factor while holding the input of a fixed factor constant, eventually the firm will get diminishing marginal returns to output from the variable factor. As a factor has to be fixed, it is solely a short run phenomenon.
Short-run costs can be classed as fixed and variable. Fixed costs do not change with output, variable do.
Sunk costs are a type of fixed costs which have to be paid, even when a firm produces no output.
There is a clear an immutable relationship between total, average and marginal costs.
For a U-shaped average cost curve, marginal cost always cuts the minimum point of average costs.
The minimum efficient scale is the point at which the long-run average cost curve stops sloping downwards due to previous economies of scale.
In practice, long-run average costs curves may take a variety of shapes, according to the technology of the industry concerned.