Chapter 8: Concepts/ Theory Flashcards
Production+ the production function
the creation of goods and services from inputs and resources
Q=f(L,K)
Variable proportions production
production in which output level can be produced with more than one combination of inputs
Fixed proportions production
production in which only one ratio of goods can be used to produce a good
Technical efficiency
producing maximum output for any given combination of inputs and existing technology
Economic efficiency
producing a given level of output at the lowest possible total cost
Variable input
input for which the level of usage may be varied to increase/ decrease output
Fixed input
input for which the level of usage remains constant as output varies.
It is a sunk cost
Quasi-fixed input
invisible input for which a foxed amount must be used for any positive level of output and none is purchased when output is zero
Short run vs. Long run time periods
SR- has at least one fixed input
LR- long enough int he future to allow all fixed inputs to become variable
Sunk cost
payment for an input that cannot be recovered, fixed cost
Avoidable cost
payment for an input that can be recovered should the firm no longer need the input, variable/ quasi-fixed costs
Average product of labor (AP)
Total product (TP) divided by number of workers
AP=Q/L
Marginal product of labor (MP)
additional output from one more worker with all other inputs fixed
MP=change in Q/ change in L
Law on diminishing MP
as the number of units of the variable input increases (all other inputs held constant) a point will be reached where MP decreases
Total fixed cost (TFC)
total amount paid for fixed inputs, does not vary with output
