The Production Function
The way a firm combines inputs to produce an output.
What is Production Function?
A cost that must be paid even when a firm's output is zero.
What is Fixed Cost?
a firm can make all needed adjustments- can expand or add on, build a bigger plant
Long run is?
A firm's maximum potential level of production.
A firm's maximum potential level of production.
What is Plant Capacity?
A cost that changes as output changes.
What is Variable Cost?
Variable inputs and Fixed Inputs
What are the two types of input?
The sum of fixed and variable costs.
What is total Cost?
firm, plant size, cost of production
what are key issues of long run production?
Can variable inputs be altered?
Yes
Are U-shaped
ATC and AVC are?
Division of Labor
Why does MP increase initially?
MC decreases initially
Mc depends on MP?
average total costs will decrease as firm gets bigger. and then they produce too much so then the cost will increase once it reaches a minimum cost
what happens to ATC as a firm builds bigger plants with larger and larger output capacities?
Always happens in the short run because more and more of the variable inputs are being added to a fixed amount of the fixed inputs.
Why does MP then decrease?
extra or additional cost of producing one or more unit of output. MC can be determined for each added unit of output by noting the change in total cost that a unit's production entails.
What is marginal cost?
Add up the total quantity of output produced by a certain amount of input.
Finding Total Product?
Because of Specialization
MC falls first?
LAC
what is long-run ATC (average total costs) referred to as?
Only in the long run.
Can fixed inputs be altered?
total fixed costs divided by the quantity
What is average fixed cost?
It is the average quantity of output produced by one unit of a variable input. Formula: AP(L)=TP/L
Finding Average Product?
At least one input is fixed and eventually, diminishing returns will occur.
Beyond a certain level of output, the short-run marginal cost will rise because?
cost advantages of size (benefits of being big)
what does economies of scale mean?
Finding Marginal Product?
The additional output produced by one or more units of a variable input.
Formula: MP(L)= Change TP / Change L
Costs that change with the level of output. Include payments for materials, fuel, power, transportation services, most labor etc.
What are Variable costs?