ECON: Chapter 5: Terms to Remember Flashcards
supply
The ability and willingness to sell (produce) specific quantities of a good at alternative prices in a given time period, ceteris paribus.
factors of production
Resource inputs used to produce goods and services (e.g., land, labor, capital, and entrepreneurship).
production function
A technological relationship expressing the maximum quantity of a good attainable from different combinations of factor inputs.
marginal physical product (MPP)
The change in total output associated with one additional unit of input.
law of diminishing returns
The marginal physical product of a variable input declines as more of it is employed with a given quantity of other (fixed) inputs.
short run
The period in which the quantity (and quality) of some inputs cannot be changed.
long run
A period of time long enough for all inputs to be varied (no fixed costs).
profit
The difference between total revenue and total cost.
Total cost
The market value of all resources used to produce a good or service.
fixed costs
Costs of production that do not change when the rate of output is altered (e.g., the cost of basic plant and equipment).
variable costs
Costs of production that change when the rate of output is altered (e.g., labor and material costs).
average total cost (ATC)
Total cost divided by the quantity produced in a given time period.
marginal cost (MC)
The increase in total costs associated with a one-unit increase in production.
production decision
The selection of the short-run rate of output (with existing plant and equipment).
investment decision
The decision to build, buy, or lease plant and equipment; the decision to enter or exit an industry.
