- The Production Function: is the relationship between the quantity of inputs a firm uses
and the quantity of output it produces.
- Fixed input: an input whose quantity is fixed for a period of time and cannot be varied.
- Variable input: an input whose quantity the firm can vary at any time.
- Long run: time period in which all inputs can be varied
- Short run: time period in which at least one input is fixed.
- Total product curve: shows how the quantity of output depends on the quantity of the
variable input for a given quantity of the fixed input.
- Marginal product: of an input is the additional quantity of output that is produced by using
one or more unit of that input. Chapter 11
- Diminishing returns to an input: when an increase in the quantity of that input, holding
the levels of all other inputs fixed, leads to a decline in the marginal product of that input. Chapter 11
The position of the total product curve depends on the quantities of other inputs.
- Fixed cost: a cost that does not depend on the quantity of output produced. It is the cost
of the fixed input.
- Variable cost: the cost that depends on the quantity of output produced. Is the cost of the
- Total cost: of the producing a given quantity of ouput is the sum of the fixed cost and the
variable cost of producing that quantity of output.
o Total cost= Fixed Cost + Variable Cost Chapter 11
- Total cost curve: shows how the total cost depends on the quantity of output. Chapter 11
- Average total cost: referred to as average cost, is total cost divided by quantity of output
produced Chapter 11
- Ushaped average total cost curve: falls at low levels of output, then rises at higher
Increasing output has 2 effects on average total cost
1. Spreading effect: larger the output the greater the quantity
of output over which fixed cost is spread, l