Chapter 11 - Behind The Supply Flashcards
Production function
Relationship between the quantity of inputs a firm uses and the quantity of output it produces
Fixed input
Input whose quantity is fixed for a period of time and cannot be varied
Variable input
An input whose quantity the firm can vary at any tine
Long run
Period in which all inputs can be varied
Short run
Period in which at least one input is fixed
Marginal product
Input is the additional quantity of output that is produced by usu in one or more unit of that input
Diminishing returns to an input
An increase in the quantity of that input, holding other inputs and technology fixed, reduces that inputs marginal product
Fixed cost
Cost that does not depend on the quantity of output produced
Variable cost
Cost that depends on the quantity of output produced
Spreading effect
The larger the output, the more output over which fixed cigs is spread, leading to lower average fixed cost
Diminishing returns effect
The larger the output, the more variable input required to produce additional units, which leads to higher average variable cost
Why does marginal cost slope upward
Because of diminishing returns
Why does average total cost slope downward
Because of the spreading effect
At high levels of output the spreading effect
Is weaker than the diminishing returns effect
The minimum cost output
The quantity of output at which average total cost is lowest - the bottom of the u-shared average total cost curve
