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Production
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Production Function
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Chapter 11

Behind the Supply Curve: Inputs and Costs

TermDefinition
Production process of turning inputs into outputs
Production Function 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 and cannot be varied
Variable input an input whose quantity the firm can vary at any time
Short run period in which at least one input is fixed
Long run period in which all inputs can be varied
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 change in output resulting from one-unit increase in the amount of labor input ( change in Q/ change in L)
Fixed cost cost that does not depend on the quantity of output produced/cost of fixed input
Variable cost cost that depends on the quantity of output produced/ cost of the variable input
Total cost sum of fixed cost and variable cost -TC curve becomes steeper as more output is produced, a result of diminishing returns
Marginal cost change in total cost generated by one additional unit of output MC= change in TC/change in Q
Average Total Cost ATC= TC/Q
Average fixed cost ATC= FC/Q
Average variable cost ATC= VC/Q
The spreading effect the larger the output, the more output over which fixed cost is spread, leading to lower average fixed cost
The diminishing returns effect The larger the output, the more variable input required to produce additional units, which leads to higher average variable cost
Marginal cost is ___________ sloping because of diminishing returns upward
Average variable cost is ______ sloping but is _______ than marginal cost curve upward; flatter
Average fixed cost is _______ sloping because of the spreading effect downward
The marginal cost curve intersects the average total cost curve from below, crossing it at its _________ point lowest
Created by: kthomas96
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