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Production function
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the relationship between the quantity of inputs a firm uses and the quantity of output it produces
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Fixed input
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an input whose quantity is fixed for a period of time and cannot be varied
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Variable input
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an input whose quantity the firm can vary at any time
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Long run
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the time period in which all inputs can be varied
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Short run
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the time period in which at least one input is fixed
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Total product curve
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shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input
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Marginal product of labor
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the additional quantity of output that is produced by using one more unit of that input- MPL= change in quantity of output/ change in labor
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Diminishing returns to an input
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when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input- negative slope
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Fixed cost (FC)
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a cost that does not depend on the quantity of output produced
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Variable cost (VC)
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a cost that depends on the quantity of output produced
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Total cost (TC)
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the sum of the fixed cost and the variable cost of producing that quantity of output- TC= FC + VC
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Total cost curve
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shows how total cost depends on the quantity of output
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Average total cost (ATC)
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total cost/ quantity of output- ATC= TC/Q
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U-shaped ATC curve
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falls at low levels of output, then rises at higher levels
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Average fixed cost (AFC)
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the fixed cost per unit of output- AFC= FC/Q
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Average variable cost (AVC)
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the variable cost per unit of output- AVC= VC/Q
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Minimum-cost output
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the quantity of output at which the average total cost is lowest—the bottom of the U-shaped average total cost curve.
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Long-run average total cost
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shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output
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Increasing returns to scale
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when long-run average total cost declines as output increases
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Decreasing returns to scale
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when long-run average total cost increases as output increases
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Constant return to scale
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when long-run average total cost is constant as output increases
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Marginal cost equation
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change in total cost/ change in quantity- MC= supply curve
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Profit equaiton
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(price x quantity) - (ATC x quantity) or (P-ATC) x quantity
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