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Final Good
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a good that is bought by a consumer
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intermidiate good
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a good that is used to produce another good
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Production
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the process by which a person, company, government, or non-profit agency uses inputs to create a good or service for which others are willing to pay
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Short-Run
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In production economics, the period of time during which one or more inputs into production cannot be changed.
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fixed inputs
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inputs that cannot be changed in the short run
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variable inputs
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inputs that can be changed in the short run
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variable inputs
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inputs that can be changed in the short run
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Long run
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in production economics, the amount of time necessary for all inputs into production to be fully adjustable
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production function
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a mathematical relationship that describes how much output can be made from different combinations of inputs
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marginal product
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the additional output that a firm can produce by using an additional unit of an input (holding use of the other input constant).
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diminishing marginal product
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the reduction in the incremental output obtained from adding more and more labor
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average product
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total quantity of output divided by the number of units of input used to produce it.
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Production in the Long Run
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In the long run, firms can change not only their labor inputs but also their capital. This difference gives them two important benefits:1. In the long run, a firm might be able to lessen the sting of diminishing marginal products.2. In the long run is that producers often have some ability to substitute capital for labor or vice versa
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cost minimization
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a firm's goal of producing a specific quantity of output at minimum cost
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Isoquant
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a curve representing all the combinations of inputs that allow a firm to make a particular quantity of output
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Marginal Rate of Technical Substitution
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the rate at which the firm can trade input X for input Y, holding output constant.
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Isocost Line
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A curve that shows all the input combinations that yield the same cost
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return to scale
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a change in the amount of output in response to a proportional increase in all of the inputs
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constant returns to scale
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a production function for which changing all inputs by the same proportion changes the quantity of output by the same proportion
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increasing returns to scale
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a production function for which changing all inputs by the same proportion changes output more than proportionately
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decreasing returns to scale
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a production function for which changing all inputs by the same proportion changes output less than proportionately
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fixed costs
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an input cost that does not vary with the amount of output, even if output is zero
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learning by doing
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the process by which a firm becomes more efficient at production as it produces more output
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total factor productivity growth
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an improvement in technology that changes the firm's production function such that more output is obtained from the same amount of inputs
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Expansion Path
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a curve that illustrates how the optimal mix of inputs varies with total output
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total cost curve
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a curve that shows a firm's cost of producing particular quantities
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