Economics for Managers Chapter 5 Flashcards
Production Function
The relationship between a flow of inputs and the resulting flow of outputs in a production process during a given period of time.
Fixed Input
An input whose quantity a manager cannot change during a given period of time.
Variable Input
An input whose quantity a manager can change during a given period of time.
Short-run Production Function
A production process that uses at least one fixed input.
Long-run Production Function
A production process in which all inputs are variable.
Total Product
The total quantity of output produced with given quantities of fixed and variable inputs.
Average Product
The amount of output per unit of variable input.
Marginal Product
The additional output produced with an additional unit of variable input.
Increasing Marginal Returns
The results in that region of the marginal product curve where the curve is positive and increasing, so that total product increases at an increasing rate.
Law of Diminishing Marginal Returns or Law of the Diminishing Marginal Product
The phenomenon illustrated by that region of the marginal product curve where the curve is positive, but decreasing, so that total product is increasing at a decreasing rate.
Negative Marginal Returns
The results in that region of the marginal product curve where the curve is negative and decreasing, so that total product is decreasing.
Cost Function
A mathematical or graphic expression that shows the relationship between the cost of production and the level of output, all other factors held constant.
Opportunity Cost
The economic measure of cost that reflects the use of resources in one activity, such as a production process by one firm, in terms of the opportunities forgone in undertaking the next best alternative activity.
Explicit Cost
A cost that is reflected in a payment to another individual, such as a wage paid to a worker, that is recorded in a firm’s bookkeeping or accounting system.
Implicit Cost
A cost that represents the value of using a resource that is not explicitly paid out and is often difficult to measure because it is typically not recorded in a firm’s accounting system.
