question
Production Function
answer
Function showing the highest output a firm can produced for every specified combination of inputs
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Short Run
answer
period of time in which quantities of one or more production factors cannot be changed
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Long Run
answer
amount of time needed to make all production inputs variable
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Average Product
answer
output per unit of a particular input
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Marginal Product
answer
additional output produced as an input is increased by one unit
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Marginal Product > Average Product
answer
Average product is increasing
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Marginal Product < Average Product
answer
Average product is decreasing
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Economic Cost
answer
cost to a firm of utilizing economic resources in production
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Opportunity Cost
answer
cost associated with opportunities that are forgone when a firm's resources are not put to their best alternative use
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Sunk Cost
answer
Expenditure made that cannot be recovered
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Fixed Cost
answer
cost that does not vary with the level of output
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Variable Cose
answer
cost that varies as output varies
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Total Cost
answer
Fixed Cost + Variable Cost
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Marginal Cost
answer
increase in cost resulting from the production of one extra unit of output
change in variable cost divided by change in output
change in variable cost divided by change in output
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Average Total Cost
answer
Total Cost / Level of output
TC / q
TC / q
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Average Fixed Cost
answer
Fixed Cost / Level of output
FC / q
FC / q
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Average Variable Cost
answer
Variable Cost / Level of Output
VC / q
VC / q
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Profit
answer
Total Revenue minus Total Cost
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Marginal Revenue
answer
Change in revenue resulting from a one-unit increase in output
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How/when is profit maximized?
answer
When marginal revenue equals marginal cost
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Marginal Rate of Technical Substitutions
answer
Amount by which the quantity of one input can be reduced when one extra unit of another input is used, so that output remains constant
MRTS = -Change in capital input / change in labor input
Marginal Product of Labor / Marginal Product of Capital
MRTS = -Change in capital input / change in labor input
Marginal Product of Labor / Marginal Product of Capital
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