Ch9 (11) : Production Flashcards
firm is ….
firm is an economic institution that transforms factors of production into goods and services. A firm (1) organizes factors of production and/or (2) produces goods and/or (3) sells produced goods to individuals, businesses, or government.
Profit =
Profit = Total revenue - Total cost
total cost is ….
total cost is explicit payments to the factors of production plus the opportunity cost of the factors provided by the owners of the firm
total revenue is …
total revenue is the amount a firm receives for selling its product or service plus any increase in the value of the assets owned by the firm
Economic profit =
Economic profit = (Explicit and implicit revenue) - (Explicit and implicit cost)
Production is …
Production is the name given to that transformation of factors into goods and services
production table is…
production table — a table showing the output resulting from various com- binations of factors of production or inputs
marginal product is…
marginal product — the additional output that will be forthcoming from an additional worker, other inputs constant
average product is…
average product — output per worker
Workers’ average product is the total output divided by the number of workers. For example, let’s consider the case of 5 workers. Total output is 28, so average product is 5.6 (28 divided by 5)
production function is …
production function is the relationship between the inputs (factors of production) and outputs. Specifically, the production function tells the maximum amount of output that can be derived from a given number of inputs
Marginal cost is…
Marginal cost is: change in total cost / change in total output
Law of Diminishing Marginal Productivity is…
Law of Diminishing Marginal Productivity: while increasing one input and keeping other inputs at the same level may initially increase output, further increases in that input will have a limited effect, and eventually no effect or a negative effect, on output.
The Law of Diminishing Marginal Productivity helps explain why increasing production is not always the best way to increase profitability.
