Definitions
What is an input?
The resources needed
What is the Formula for Marginal Product?
Change in TP/Change in Labor
What happens to TP when MP is increasing?
TP is increasing at an increasing rate
What is Marginal cost?
Marginal Cost: The additional cost of producing one more unit of output
What is Increasing Returns to Scale?
When the output is increasing at a faster rate than all inputs
What is an output?
How much is produced
What is the formula for Average Product?
Total Product/Labor
What happens to TP when MP is positive BUT decreasing?
TP is increasing at a deceasing rate
What is the formula for Marginal Cost?
Change in TC/Change in Q
What is Decreasing Returns to Scale?
When the output is increasing at a slower rate than all inputs
What are the different inputs?
Variable Inputs and Fixed inputs
What is the Average Fixed Cost (AFC) formula?
FC/Q
What happens to TP when MP is 0?
TP is at maximum
What happens when MC decreases initially? When is eventually rising?
Initial decrease: Specialization
Eventually Rises: Diminishing Returns
What are Constant Returns to Scale?
When the output is increasing at the same rate as all inputs.
What is the difference between short-run and long-run?
Short-run: period which there are fixed inputs; period is too short for a firm to alter its plant capacity
Long-run: time long enough for a firm to change all of its inputs period long enough for a firm to alter its plant capacity
What is the Average Variable Cost Formula (AFC)?
VC/Q
What happens to TP when MP is negative?
TP is decreasing
What is an example of a fixed cost?
Greta's Cookies:
A kitchen is a fixed cost because it's something you NEED to have, so it never changes
What are economies of scale? What are Diseconomies of scale?
Economies of Scale: Long-run ATC decreases as output increases. Meaning that output increases as cost decreases
Diseconomies of Scale: Long-run ATC increases as output increases. Meaning Output increases and cost increases (Rare/valuable items)
What is total production, marginal product, and average product?
Total Product (TP): The total quantity of output produced by a certain amount of inputs
Marginal Product (MP): The additional output produced by one more unit of a variable input, often labor
Average Product (AP): The average quantity of output produced by one unit of a variable input, often labor
What is the Average Total Cost (ATC) formula?
TC/Q or AFC + AVC = ATC
What 2 things can happen when MP crosses through the maximum of AP?
When MP is above AP, AP is rising
When MP is below AP, AP is falling
What is an example of a variable cost?
Something that changes. For example, in Greta's cookies:
Gaining or losing employees or the dozen cookies
What are constant returns to scale (efficient scale) and minimum efficient scale?
Constant Returns to scale: Long-run ATC is constant as output increases. Meaning output increases and cost remains constant
Minimus Efficient Scale: helps to determine the number of firms in a market