vocab
Plant Capacity
A firm's maximum potential level of production.
Total product (TP)
The total quantity of output produced by a certain amount of inputs.
Graph observations...
Tp increases until the 7th worker, and the increase is greatest with the 2nd worker.
Mp increases at first, then decreases, and finally becomes negative.
AP increases and then increases.
The types of production costs
Fixed Cost(FC), Variable Cost(VC), Total Cost(TC)
Increasing & Decreasing Returns to Scale
Increasing: Output is increasing at a faster rate than all inputs
Decreasing: output is increasing at a slower rate than all inputs
Short Run
The period of time during which there are fixed inputs; the period of time too short for a firm to alter its plant capacity.
Marginal Product (MP)
The additional output produced by one more unit of a variable input, often labor.
TP & MP
Mp represents the slope of TP:
when MP is increasing TP is increasing, TP is increasing at an increasing rate.
when MP is positive but decreasing, TP is increasing at a decreasing rate.
when MP is zero, TP is at a maximum.
when MP is negative, TP is decreasing.
Measuring Production Costs
Marginal Cost (MC): The additional cost of producing one more unit of output
Constant Returns to Scale
output is increasing at the same rate as all inputs
Long Run
The period of time long enough for a firm to change all of its inputs; the period of time long enough for a firm to alter its plant capacity.
Average Product (AP)
The average quantity of output produced by one unit of a variable input, often labor.
MP & AP
MP crosses through the maximum of AP:
when MP is above AP, AP is rising
when MP is below, AP is falling
MC depends on MP...
MC decreases initially (specialization)
MC eventually rises (diminishing returns)
Economics & Diseconomies of scale
long-run ATC decreases as output increases
long-run ATC increases as output increases
Variable Inputs (definition & examples)
Inputs that CAN be changed in the short run to change production
ex:
labor, ingredients, materials (easy to add, change or replace)
Formula's for MP & AP
MP= change in TP/change in labor
AP= Total Product/labor
When total physical product is at its maximum, marginal physical product must be...
equal to zero
AFC & AVC
Average Fixed Cost: The average per-unit fixed cost of production for a given quantity of output
Average Variable Cost: The average per-unit fixed cost of production for a given quantity of output
Constant Returns to Scale (Efficient Scale)
long-run ATC is constant as output increases
Fixed Inputs (definition & examples)
Inputs that CANNOT be changed in the short run to change production
ex:)
Tools, machines (difficult or expensive to add/replace)
why?
budget (profit), #of product, # of workers (labor)
companies want to find max capacity --> max profits
When marginal product exceeds average product...
average product is increasing
ATC & Formula
Average Total Cost: the average per-unit total cost of production for a given quantity of output
ATC= TC/Q
AFC+AVC=ATC
Minimum Efficient Scale
helps determine the number of firms in a market