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Production function
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Is 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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Is 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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Is an input whose quantity the firm can vary at any time.
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Long run
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Is the time period in which all inputs can be varied.
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Short run
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Is 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
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Of an input is the additional quantity of output that is produced by using one more unit of that input.
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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.
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Fixed cost
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Is a cost that does not depend on the quantity of output produced. It is the cost of the fixed input.
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Variable cost
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Is a cost that depends on the quantity of output produced. It is the cost of the variable input.
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Total cost
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Of producing a given quantity of output is the sum of the fixed cost and the variable cost of producing that quantity of output.
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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/Average cost
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Is total cost divided by quantity of output produced.
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U-shaped average total cost curve
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Falls at low levels of output, then rises at higher levels.
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Average fixed cost
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Is the fixed cost per unit of output.
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Average variable cost
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Is the variable cost per unit of output.
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Minimum-cost output
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Is the quantity of output at which average total cost is lowest—the bottom of the U-shaped average total cost curve.
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Long-run average total cost curve
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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 returns to scale
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When long-run average total cost is constant as output increases.
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AFC
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FC/Q
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AVC
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VC/Q
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ATC
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TC/Q
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